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.
Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. Keeping that in mind, here are three Russell 2000 stocks to steer clear of and some alternatives to watch instead.
Market Cap: $356.8 million
With its magnesium alloys used in the construction of the famous Spirit of St. Louis aircraft, Luxfer (NYSE:LXFR) offers specialized materials, components, and gas containment devices to various industries.
Why Should You Dump LXFR?
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Customers postponed purchases of its products and services this cycle as its revenue declined by 1.9% annually over the last two years
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Free cash flow margin shrank by 7.8 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
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Waning returns on capital imply its previous profit engines are losing steam
At $13.34 per share, Luxfer trades at 12.2x forward P/E. To fully understand why you should be careful with LXFR, check out our full research report (it’s free for active Edge members).
Market Cap: $1.29 billion
Founded in 1981 and operating at the intersection of food safety and animal health, Neogen (NASDAQ:NEOG) develops and manufactures diagnostic tests and related products to detect dangerous substances in food and pharmaceuticals for animal health.
Why Do We Steer Clear of NEOG?
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Customers postponed purchases of its products and services this cycle as its revenue declined by 1.8% annually over the last two years
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Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
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Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Neogen is trading at $6 per share, or 18.4x forward P/E. Check out our free in-depth research report to learn more about why NEOG doesn’t pass our bar.
Market Cap: $1.38 billion
With a network of approximately 2,620 affiliated physicians caring for some of the most vulnerable patients, Pediatrix Medical Group (NYSE:MD) provides specialized physician services focused on neonatal, maternal-fetal, pediatric cardiology and other pediatric subspecialty care across 37 states.
Why Is MD Risky?
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Weak comparable store sales trends over the past two years suggest there may be few opportunities in its core markets to open new facilities
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Sales are projected to tank by 1.5% over the next 12 months as its demand continues evaporating
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Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
