3 Russell 2000 Stocks with Warning Signs

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 that don’t make the cut and some better choices instead.

Nature's Sunshine (NATR)

Market Cap: $466.6 million

Started on a kitchen table in Utah, Nature’s Sunshine (NASDAQ:NATR) manufactures and sells nutritional and personal care products.

Why Does NATR Worry Us?

1. Muted 2.8% annual revenue growth over the last three years shows its demand lagged behind its consumer staples peers
2. Smaller revenue base of $474.5 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
3. Anticipated sales growth of 3.1% for the next year implies demand will be shaky

Nature's Sunshine is trading at $26.68 per share, or 29.1x forward P/E. Dive into our free research report to see why there are better opportunities than NATR.

Perma-Fix (PESI)

Market Cap: $268.5 million

Tackling hazardous waste challenges since 1990, Perma-Fix (NASDAQ:PESI) provides environmental waste treatment services.

Why Are We Out on PESI?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 9.4% annually over the last five years
2. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
3. Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders

Perma-Fix’s stock price of $14.52 implies a valuation ratio of 494.7x forward P/E. To fully understand why you should be careful with PESI, check out our full research report (it’s free).

Evolent Health (EVH)

Market Cap: $303.6 million

Founded in 2011 to transform how healthcare is delivered to patients with complex needs, Evolent Health (NYSE:EVH) provides specialty care management services and technology solutions that help health plans and providers deliver better care for patients with complex conditions.

Why Do We Think Twice About EVH?

1. 7.1% annual revenue growth over the last two years was slower than its healthcare peers
2. Negative returns on capital show that some of its growth strategies have backfired, and its falling returns suggest its earlier profit pools are drying up
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

At $2.74 per share, Evolent Health trades at 12.4x forward P/E. Read our free research report to see why you should think twice about including EVH in your portfolio.

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