3 Russell 2000 Stocks We Think Twice About

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. That said, here are three Russell 2000 stocks to avoid and better alternatives to consider.

Bloomin' Brands (BLMN)

Market Cap: $589.5 million

Owner of the iconic Australian-themed Outback Steakhouse, Bloomin’ Brands (NASDAQ:BLMN) is a leading American restaurant company that owns and operates a portfolio of popular restaurant brands.

Why Do We Avoid BLMN?

1. Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new restaurants
2. Sales are projected to tank by 2.3% over the next 12 months as demand evaporates further
3. 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

Bloomin' Brands’s stock price of $7.04 implies a valuation ratio of 6.6x forward P/E. Read our free research report to see why you should think twice about including BLMN in your portfolio.

Haemonetics (HAE)

Market Cap: $2.41 billion

With roots dating back to 1971 and a mission to improve blood-related healthcare, Haemonetics (NYSE:HAE) provides specialized medical devices and software for blood collection, processing, and management across plasma centers, blood banks, and hospitals.

Why Does HAE Give Us Pause?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. Modest revenue base of $1.35 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
3. Estimated sales decline of 3% for the next 12 months implies a challenging demand environment

At $49.99 per share, Haemonetics trades at 10x forward P/E. Check out our free in-depth research report to learn more about why HAE doesn’t pass our bar.

Azenta (AZTA)

Market Cap: $1.37 billion

Serving as the guardian of some of medicine's most valuable materials, Azenta (NASDAQ:AZTA) provides biological sample management, storage, and genomic services that help pharmaceutical and biotechnology companies preserve and analyze critical research materials.

Why Should You Dump AZTA?

1. Sales tumbled by 7.2% annually over the last five years, showing market trends are working against its favor during this cycle
2. Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 18.7% annually, worse than its revenue
3. Free cash flow margin shrank by 22.5 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

Azenta is trading at $29.90 per share, or 40.2x forward P/E. If you’re considering AZTA for your portfolio, see our FREE research report to learn more.

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