The Russell 2000 (^RUT) is packed with potential breakout stocks, thanks to its focus on smaller companies with high growth potential. However, smaller size also means these businesses often lack the resilience and financial flexibility of large-cap firms, making careful selection crucial.
Picking the right small caps isn’t easy, and that’s exactly why StockStory exists - to help you focus on the best opportunities. Keeping that in mind, here are three Russell 2000 stocks that don’t make the cut and some better choices instead.
The Marzetti Company (MZTI)
Market Cap: $4.56 billion
Known for its frozen garlic bread and Parkerhouse rolls, The Marzetti Company (NASDAQ:MZTI) sells bread, dressing, and dips to the retail and food service channels.
Why Is MZTI Not Exciting?
- Annual revenue growth of 4% over the last three years was below our standards for the consumer staples sector
- Estimated sales growth of 1.8% for the next 12 months implies demand will slow from its three-year trend
- Gross margin of 23.4% is below its competitors, leaving less money to invest in areas like marketing and production facilities
At $166.04 per share, The Marzetti Company trades at 23.2x forward P/E. Dive into our free research report to see why there are better opportunities than MZTI.
Benchmark (BHE)
Market Cap: $1.60 billion
Operating as a critical behind-the-scenes partner for complex technology products since 1979, Benchmark Electronics (NYSE:BHE) provides advanced manufacturing, engineering, and technology solutions for original equipment manufacturers across aerospace, medical, industrial, and technology sectors.
Why Does BHE Give Us Pause?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 5.1% annually over the last two years
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 5.4% annually
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Benchmark is trading at $44.78 per share, or 18.5x forward P/E. Check out our free in-depth research report to learn more about why BHE doesn’t pass our bar.
Hub Group (HUBG)
Market Cap: $2.69 billion
Started with $10,000, Hub Group (NASDAQ:HUBG) is a provider of intermodal, truck brokerage, and logistics services, facilitating transportation solutions for businesses worldwide.
Why Do We Steer Clear of HUBG?
- Underwhelming unit sales over the past two years indicate demand is soft and that the company may need to revise its strategy
- Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
- Eroding returns on capital suggest its historical profit centers are aging
Hub Group’s stock price of $43.97 implies a valuation ratio of 22.3x forward P/E. If you’re considering HUBG for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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