The Russell 2000 (^RUT) is home to many small-cap stocks, offering investors the chance to uncover hidden gems before the broader market catches on. However, these companies often come with higher volatility and risk, as their smaller size makes them more vulnerable to economic downturns.
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 to avoid and better alternatives to consider.
Edgewell Personal Care (EPC)
Market Cap: $1.35 billion
Boasting brands such as Banana Boat, Schick, and Skintimate, Edgewell Personal Care (NYSE: EPC) sells personal care products in the skin and sun care, shave, and feminine care categories.
Why Is EPC Risky?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Free cash flow margin dropped by 8.3 percentage points over the last year, implying the company became more capital intensive as competition picked up
- Underwhelming 6.2% return on capital reflects management’s difficulties in finding profitable growth opportunities
Edgewell Personal Care’s stock price of $29.58 implies a valuation ratio of 8.7x forward P/E. If you’re considering EPC for your portfolio, see our FREE research report to learn more.
Hillenbrand (HI)
Market Cap: $1.6 billion
Hillenbrand, Inc. (NYSE: HI) is an industrial company that designs, manufactures, and sells highly engineered processing equipment and solutions for various industries.
Why Do We Steer Clear of HI?
- Annual revenue growth of 7.2% over the last five years was below our standards for the industrials sector
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 5.9% annually while its revenue grew
- 14.7 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Hillenbrand is trading at $22.71 per share, or 8.8x forward P/E. Check out our free in-depth research report to learn more about why HI doesn’t pass our bar.
Amneal (AMRX)
Market Cap: $2.38 billion
Founded in 2002 and growing into one of America's largest generic drug producers, Amneal Pharmaceuticals (NASDAQ: AMRX) develops, manufactures, and distributes generic medicines, specialty branded drugs, biosimilars, and injectable products for the U.S. healthcare market.
Why Does AMRX Fall Short?
- Free cash flow margin dropped by 12.1 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
At $7.50 per share, Amneal trades at 10.9x forward P/E. Dive into our free research report to see why there are better opportunities than AMRX.
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