Small-cap stocks in the Russell 2000 (^RUT) can be a goldmine for investors looking beyond the usual large-cap names. But with less stability and fewer resources than their bigger counterparts, these companies face steeper challenges in scaling their businesses.
The high-risk, high-reward nature of the Russell 2000 makes stock selection critical, and we’re here to guide you toward the right ones. Keeping that in mind, here are three Russell 2000 stocks to steer clear of and some alternatives to watch instead.
Asure Software (ASUR)
Market Cap: $222.1 million
Operating in the often-overlooked smaller metropolitan markets where HR expertise can be scarce, Asure Software (NASDAQ:ASUR) provides cloud-based human capital management software and services that help small and medium-sized businesses manage payroll, taxes, time tracking, and HR compliance.
Why Should You Sell ASUR?
- Annual revenue growth of 4.4% over the last two years was well below our standards for the software sector
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 7.1% underwhelmed
- Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 3.2 percentage points
Asure Software is trading at $8.60 per share, or 1.5x forward price-to-sales. Check out our free in-depth research report to learn more about why ASUR doesn’t pass our bar.
Cushman & Wakefield (CWK)
Market Cap: $3.91 billion
With expertise in the commercial real estate sector, Cushman & Wakefield (NYSE:CWK) is a global Chicago-based real estate firm offering a comprehensive range of services to clients.
Why Do We Steer Clear of CWK?
- Sales were flat over the last two years, indicating it’s failed to expand its business
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 4.3% annually while its revenue grew
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 1.9% for the last two years
At $16.87 per share, Cushman & Wakefield trades at 14.1x forward P/E. Dive into our free research report to see why there are better opportunities than CWK.
Scorpio Tankers (STNG)
Market Cap: $2.82 billion
Operating one of the youngest fleets in the industry, Scorpio Tankers (NYSE: STNG) is an international provider of marine transportation services, specializing in the shipment of refined petroleum.
Why Is STNG Not Exciting?
- Sales tumbled by 1.5% annually over the last five years, showing market trends are working against its favor during this cycle
- Performance surrounding its total vessels has lagged its peers
- Earnings per share have contracted by 41.5% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
Scorpio Tankers’s stock price of $59.45 implies a valuation ratio of 9.7x forward P/E. If you’re considering STNG for your portfolio, see our FREE research report to learn more.
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