3 Russell 2000 Stocks That Concern Us

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.

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.

Mission Produce (AVO)

Market Cap: $977 million

Founded in 1983 in California, Mission Produce (NASDAQ:AVO) grows, packages, and distributes avocados.

Why Is AVO Risky?

1. Smaller revenue base of $1.39 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
2. Forecasted revenue decline of 17.8% for the upcoming 12 months implies demand will fall off a cliff
3. Gross margin of 11.9% is below its competitors, leaving less money to invest in areas like marketing and production facilities

Mission Produce is trading at $13.79 per share, or 19.7x forward P/E. To fully understand why you should be careful with AVO, check out our full research report (it’s free).

Insteel (IIIN)

Market Cap: $660.4 million

Growing from a small wire manufacturer to one of the largest in the U.S., Insteel (NYSE:IIIN) provides steel wire reinforcing products for concrete.

Why Do We Think Twice About IIIN?

1. Sales trends were unexciting over the last two years as its 5.9% annual growth was below the typical industrials company
2. 8.3 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
3. Eroding returns on capital suggest its historical profit centers are aging

At $34.00 per share, Insteel trades at 12.7x forward P/E. Read our free research report to see why you should think twice about including IIIN in your portfolio.

Trupanion (TRUP)

Market Cap: $1.19 billion

Born from a vision to help pet owners avoid economic euthanasia when faced with expensive veterinary bills, Trupanion (NASDAQ:TRUP) provides medical insurance for cats and dogs through data-driven, vertically-integrated products priced specifically for each pet's unique characteristics.

Why Are We Wary of TRUP?

1. Book value per share was flat over the last five years, indicating it’s failed to build equity value this cycle
2. Negative return on equity shows management lost money while trying to expand the business

Trupanion’s stock price of $27.45 implies a valuation ratio of 2.8x forward P/B. Check out our free in-depth research report to learn more about why TRUP doesn’t pass our bar.

Stocks We Like More

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