3 Russell 2000 Stocks We Find Risky

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. That said, here are three Russell 2000 stocks to steer clear of and some alternatives to watch instead.

Carter's (CRI)

Market Cap: $1.28 billion

Rumored to sell more than 10 products for every child born in the United States, Carter's (NYSE:CRI) is an American designer and marketer of children's apparel.

Why Should You Dump CRI?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its stores
2. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

At $35.23 per share, Carter's trades at 11.6x forward P/E. Dive into our free research report to see why there are better opportunities than CRI.

Wolverine Worldwide (WWW)

Market Cap: $1.35 billion

Founded in 1883, Wolverine Worldwide (NYSE:WWW) is a global footwear company with a diverse portfolio of brands including Merrell, Hush Puppies, and Saucony.

Why Do We Pass on WWW?

1. Sales stagnated over the last five years and signal the need for new growth strategies
2. Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 7.8% annually
3. Free cash flow margin is not anticipated to grow over the next year

Wolverine Worldwide is trading at $16.59 per share, or 12.1x forward P/E. If you’re considering WWW for your portfolio, see our FREE research report to learn more.

Xerox (XRX)

Market Cap: $240.7 million

Pioneering the modern office copier and inventing technologies like Ethernet and the laser printer, Xerox (NASDAQ:XRX) provides document management systems, printing technology, and workplace solutions to businesses of all sizes across the globe.

Why Should You Sell XRX?

1. Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
2. Free cash flow margin shrank by 5.5 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
3. High net-debt-to-EBITDA ratio of 8× could force the company to raise capital at unfavorable terms if market conditions deteriorate

Xerox’s stock price of $1.88 implies a valuation ratio of 3.8x forward P/E. To fully understand why you should be careful with XRX, check out our full research report (it’s free).

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