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.
Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. That said, here are three Russell 2000 stocks to steer clear of and some alternatives to watch instead.
Lindblad Expeditions (LIND)
Market Cap: $1.12 billion
Founded by explorer Sven-Olof Lindblad in 1979, Lindblad Expeditions (NASDAQ: LIND) offers cruising experiences to remote destinations in partnership with National Geographic.
Why Do We Steer Clear of LIND?
- Sales trends were unexciting over the last two years as its 16.4% annual growth was below the typical consumer discretionary company
- Operating margin of 5.5% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
- Forecasted free cash flow margin suggests the company will fail to improve its cash conversion over the next year
Lindblad Expeditions’s stock price of $17.19 implies a valuation ratio of 125.9x forward P/E. Check out our free in-depth research report to learn more about why LIND doesn’t pass our bar.
Itron (ITRI)
Market Cap: $4.10 billion
Founded by a small group of engineers who wanted to build a more efficient way to read utility meters, Itron (NASDAQ: ITRI) offers energy and water management products for the utility industry, municipalities, and industrial customers.
Why Do We Think Twice About ITRI?
- Muted 1.7% annual revenue growth over the last five years shows its demand lagged behind its industrials peers
- Estimated sales growth of 2.1% for the next 12 months implies demand will slow from its two-year trend
- Underwhelming 6.6% return on capital reflects management’s difficulties in finding profitable growth opportunities
At $91.85 per share, Itron trades at 15.4x forward P/E. Dive into our free research report to see why there are better opportunities than ITRI.
GEO Group (GEO)
Market Cap: $2.18 billion
With a global footprint spanning three continents and approximately 81,000 beds across 100 facilities, GEO Group (NYSE: GEO) operates secure facilities, processing centers, and reentry services for government agencies in the United States, Australia, and South Africa.
Why Are We Hesitant About GEO?
- Muted 2.3% annual revenue growth over the last five years shows its demand lagged behind its business services peers
- Efficiency has decreased over the last four years as its adjusted operating margin fell by 6.3 percentage points
- Free cash flow margin dropped by 14.2 percentage points over the last five years, implying the company became more capital intensive as competition picked up
GEO Group is trading at $16.40 per share, or 13.7x forward P/E. To fully understand why you should be careful with GEO, check out our full research report (it’s free).
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