3 Russell 2000 Stocks That Fall Short

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.

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 RealReal (REAL)

Market Cap: $1.17 billion

Founded by consignment store aficionado Julie Wainwright, The RealReal (NASDAQ: REAL) is an online marketplace for buying and selling secondhand luxury goods.

Why Is REAL Not Exciting?

1. Sales trends were unexciting over the last three years as its 4.1% annual growth was below the typical consumer internet company
2. Focus on expanding its platform came at the expense of monetization as its average revenue per user fell by 11.7% annually
3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

The RealReal is trading at $10.23 per share, or 33.7x forward EV/EBITDA. To fully understand why you should be careful with REAL, check out our full research report (it’s free for active Edge members).

Alta (ALTG)

Market Cap: $220.2 million

Founded in 1984, Alta Equipment Group (NYSE:ALTG) is a provider of industrial and construction equipment and services across the Midwest and Northeast United States.

Why Should You Sell ALTG?

1. Muted 3.7% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
2. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
3. High net-debt-to-EBITDA ratio of 5× increases the risk of forced asset sales or dilutive financing if operational performance weakens

At $6.87 per share, Alta trades at 1.3x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than ALTG.

Fastly (FSLY)

Market Cap: $1.28 billion

Taking its name from the core advantage it delivers to customers, Fastly (NYSE:FSLY) operates an edge cloud platform that processes, secures, and delivers web content as close to end users as possible, enabling faster digital experiences.

Why Is FSLY Risky?

1. Struggled to drive increased usage of its software, demonstrated by its subpar 103% net revenue retention rate
2. Bad unit economics and steep infrastructure costs are reflected in its gross margin of 53.9%, one of the worst among software companies
3. Poor expense management has led to operating margin losses

Fastly’s stock price of $8.64 implies a valuation ratio of 2x forward price-to-sales. Check out our free in-depth research report to learn more about why FSLY doesn’t pass our bar.

High-Quality Stocks for All Market Conditions

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