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.

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 avoid and better alternatives to consider.

ThredUp (TDUP)

Market Cap: $1.12 billion

Founded to revolutionize thrifting, ThredUp (NASDAQ:TDUP) is a leading online fashion resale marketplace offering a wide selection of gently-used clothing and accessories.

Why Are We Hesitant About TDUP?

1. Sluggish trends in its orders suggest customers aren’t adopting its solutions as quickly as the company hoped
2. Suboptimal cost structure is highlighted by its history of operating margin losses
3. Cash-burning history makes us doubt the long-term viability of its business model

At $9.02 per share, ThredUp trades at 79.3x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than TDUP.

Udemy (UDMY)

Market Cap: $993.8 million

With courses ranging from investing to cooking to computer programming, Udemy (NASDAQ:UDMY) is an online learning platform that connects learners with expert instructors who specialize in a wide range of topics.

Why Are We Wary of UDMY?

1. Preference for prioritizing user growth over monetization has led to 1.3% annual drops in its average revenue per buyer
2. Demand will likely fall over the next 12 months as Wall Street expects flat revenue
3. High marketing expenses suggest it needs to spend heavily on new customer acquisition to sustain momentum

Udemy’s stock price of $6.48 implies a valuation ratio of 11.2x forward EV/EBITDA. Check out our free in-depth research report to learn more about why UDMY doesn’t pass our bar.

Installed Building Products (IBP)

Market Cap: $6.93 billion

Founded in 1977, Installed Building Products (NYSE:IBP) is a company specializing in the installation of insulation, waterproofing, and other complementary building products for residential and commercial construction.

Why Is IBP Not Exciting?

1. Muted 3.5% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
2. Forecasted revenue decline of 3% for the upcoming 12 months implies demand will fall off a cliff
3. Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 5.3% annually

Installed Building Products is trading at $255.25 per share, or 25.2x forward P/E. If you’re considering IBP for your portfolio, see our FREE research report to learn more.

Stocks We Like More

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