3 Russell 2000 Stocks with Mounting Challenges

The Russell 2000 (^RUT) is packed with potential breakout stocks, thanks to its focus on smaller companies with high growth potential. However, smaller size also means these businesses often lack the resilience and financial flexibility of large-cap firms, making careful selection crucial.

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.

Knowles (KN)

Market Cap: $1.44 billion

With roots dating back to 1946 and a focus on components that must perform flawlessly in critical situations, Knowles (NYSE:KN) designs and manufactures specialized electronic components like high-performance capacitors, microphones, and speakers for medical technology, defense, and industrial applications.

Why Do We Steer Clear of KN?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 6.2% annually over the last four years
2. Forecasted revenue decline of 7.2% for the upcoming 12 months implies demand will fall even further
3. Flat earnings per share over the last five years lagged its peers

Knowles is trading at $16.60 per share, or 15x forward P/E. If you’re considering KN for your portfolio, see our FREE research report to learn more.

3D Systems (DDD)

Market Cap: $215.5 million

Founded by the inventor of stereolithography, 3D Systems (NYSE:DDD) engineers, manufactures, and sells 3D printers and other related products to the aerospace, automotive, healthcare, and consumer goods industries.

Why Is DDD Risky?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 6.9% annually over the last five years
2. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

3D Systems’s stock price of $1.59 implies a valuation ratio of 0.5x forward price-to-sales. Dive into our free research report to see why there are better opportunities than DDD.

LeMaitre (LMAT)

Market Cap: $1.87 billion

Founded in 1983 and named after a pioneering vascular surgeon, LeMaitre Vascular (NASDAQGM:LMAT) develops and manufactures specialized medical devices used by vascular surgeons to treat peripheral vascular disease and other circulatory conditions.

Why Does LMAT Fall Short?

1. Smaller revenue base of $226.3 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
2. Operating margin didn’t move over the last five years, showing it couldn’t increase its efficiency
3. 8.9 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

At $78.55 per share, LeMaitre trades at 35.6x forward P/E. If you’re considering LMAT for your portfolio, see our FREE research report to learn more.

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