3 Russell 2000 Stocks Walking a Fine Line

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.

Adtalem (ATGE)

Market Cap: $3.42 billion

Formerly known as DeVry Education Group, Adtalem Global Education (NYSE:ATGE) is a global provider of workforce solutions and educational services.

Why Do We Steer Clear of ATGE?

1. Sales trends were unexciting over the last five years as its 12.5% annual growth was below the typical consumer discretionary company
2. Free cash flow margin is forecasted to shrink by 1.1 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities

At $94.27 per share, Adtalem trades at 8.9x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including ATGE in your portfolio.

Kennametal (KMT)

Market Cap: $2.10 billion

Involved in manufacturing hard tips of anti-tank projectiles in World War II, Kennametal (NYSE:KMT) is a provider of industrial materials and tools for various sectors.

Why Do We Pass on KMT?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Sales were less profitable over the last two years as its earnings per share fell by 4.7% annually, worse than its revenue declines
3. ROIC of 7.7% reflects management’s challenges in identifying attractive investment opportunities, and its shrinking returns suggest its past profit sources are losing steam

Kennametal’s stock price of $27.64 implies a valuation ratio of 18.3x forward P/E. To fully understand why you should be careful with KMT, check out our full research report (it’s free for active Edge members).

NBT Bancorp (NBTB)

Market Cap: $2.17 billion

Tracing its roots back to 1856 when it first opened its doors in Norwich, New York, NBT Bancorp (NASDAQ:NBTB) is a community-oriented financial institution providing banking, wealth management, and insurance services to individuals and businesses across the northeastern United States.

Why Is NBTB Not Exciting?

1. Annual revenue growth of 7.6% over the last five years was below our standards for the banking sector
2. Annual net interest income growth of 8.6% over the last five years was below our standards for the banking sector
3. Annual earnings per share growth of 1.8% underperformed its revenue over the last two years, showing its incremental sales were less profitable

NBT Bancorp is trading at $41.54 per share, or 1.2x forward P/B. Dive into our free research report to see why there are better opportunities than NBTB.

High-Quality Stocks for All Market Conditions

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