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.
Box (BOX)
Market Cap: $4.67 billion
Founded in 2005 by Aaron Levie and Dylan Smith, Box (NYSE:BOX) provides organizations with software to securely store, share and collaborate around work documents in the cloud.
Why Is BOX Not Exciting?
- 7.6% annual revenue growth over the last three years was slower than its software peers
- Offerings struggled to generate meaningful interest as its average billings growth of 4.7% over the last year did not impress
- Estimated sales growth of 5.4% for the next 12 months implies demand will slow from its three-year trend
Box is trading at $32.79 per share, or 4.2x forward price-to-sales. Read our free research report to see why you should think twice about including BOX in your portfolio.
Cable One (CABO)
Market Cap: $926.9 million
Founded in 1986, Cable One (NYSE:CABO) provides high-speed internet, cable television, and telephone services, primarily in smaller markets across the United States.
Why Do We Avoid CABO?
- Demand for its offerings was relatively low as its number of residential data subscribers has underwhelmed
- Projected sales decline of 2.5% over the next 12 months indicates demand will continue deteriorating
- Free cash flow margin is forecasted to shrink by 1.5 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
Cable One’s stock price of $164.70 implies a valuation ratio of 1.1x forward EV-to-EBITDA. If you’re considering CABO for your portfolio, see our FREE research report to learn more.
WideOpenWest (WOW)
Market Cap: $378 million
Initially started in Denver as a cable television provider, WideOpenWest (NYSE:WOW) provides high-speed internet, cable, and telephone services to the Midwest and Southeast regions of the U.S.
Why Are We Out on WOW?
- Sluggish trends in its subscribers suggest customers aren’t adopting its solutions as quickly as the company hoped
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $4.58 per share, WideOpenWest trades at 1.4x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than WOW.
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