Small-cap stocks in the Russell 2000 (^RUT) can be a goldmine for investors looking beyond the usual large-cap names. But with less stability and fewer resources than their bigger counterparts, these companies face steeper challenges in scaling their businesses.
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 that don’t make the cut and some better choices instead.
Bloomin' Brands (BLMN)
Market cap: $855.4 million
Owner of the iconic Australian-themed Outback Steakhouse, Bloomin’ Brands (NASDAQ: BLMN) is a leading American restaurant company that owns and operates a portfolio of popular restaurant brands.
Why Are We Out on BLMN?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new restaurants
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- High net-debt-to-EBITDA ratio of 6× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Bloomin' Brands’s stock price of $9.89 implies a valuation ratio of 10x forward P/E. Check out our free in-depth research report to learn more about why BLMN doesn’t pass our bar.
Park-Ohio (PKOH)
Market cap: $625.9 million
Based in Cleveland, Park-Ohio (NASDAQ: PKOH) provides supply chain management services, capital equipment, and manufactured components.
Why Are We Wary of PKOH?
- Sales stagnated over the last two years and signal the need for new growth strategies
- Performance over the past two years was negatively impacted by new share issuances as its earnings per share fell by 8% annually while its revenue was flat
- Poor free cash flow margin of -0.9% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
Park-Ohio is trading at $44.61 per share, or 12.6x forward P/E. Dive into our free research report to see why there are better opportunities than PKOH.
Northern Oil and Gas (NOG)
Market cap: $2.98 billion
Taking the path less traveled in the oil industry by choosing not to operate its own wells, Northern Oil and Gas (NYSE: NOG) acquires minority stakes in oil and gas wells operated by other companies across major U.S. shale basins.
Why Is NOG Not Exciting?
- Day-to-day expenses have swelled relative to revenue over the last five years as its EBITDA margin fell by 22.9 percentage points
- 8× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
At $28.25 per share, Northern Oil and Gas trades at 5.6x forward P/E. To fully understand why you should be careful with NOG, check out our full research report (it’s free).
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