3 Russell 2000 Stocks with Questionable Fundamentals

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 avoid and better alternatives to consider.

Rogers (ROG)

Market Cap: $1.25 billion

With roots dating back to 1832, making it one of America's oldest continuously operating companies, Rogers (NYSE:ROG) designs and manufactures specialized engineered materials and components used in electric vehicles, telecommunications, renewable energy, and other high-performance applications.

Why Do We Steer Clear of ROG?

1. Sales tumbled by 1.2% annually over the last five years, showing market trends are working against its favor during this cycle
2. Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 14.4% annually, worse than its revenue
3. 12.5 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

Rogers’s stock price of $67.33 implies a valuation ratio of 25.6x forward P/E. To fully understand why you should be careful with ROG, check out our full research report (it’s free).

Helios (HLIO)

Market Cap: $1.02 billion

Founded on the principle of treating others as one wants to be treated, Helios (NYSE:HLIO) designs, manufactures, and sells motion and electronic control components for various sectors.

Why Do We Pass on HLIO?

1. Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
2. Forecasted revenue decline of 1.6% for the upcoming 12 months implies demand will fall even further
3. Earnings per share fell by 2.3% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable

At $30.46 per share, Helios trades at 13.4x forward P/E. Check out our free in-depth research report to learn more about why HLIO doesn’t pass our bar.

Taylor Morrison Home (TMHC)

Market Cap: $5.71 billion

Named “America’s Most Trusted Home Builder” in 2019, Taylor Morrison Home (NYSE:TMHC) builds single family homes and communities across the United States.

Why Is TMHC Not Exciting?

1. Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 13% declines over the past two years
2. Earnings per share have contracted by 3.2% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 9.4 percentage points

Taylor Morrison Home is trading at $56.87 per share, or 6.5x forward P/E. If you’re considering TMHC for your portfolio, see our FREE research report to learn more.

Stocks We Like More

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