The Russell 2000 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.
Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. That said, here are three Russell 2000 stocks that don’t make the cut and some better choices instead.
Opendoor (OPEN)
Market Cap: $727.1 million
Founded by real estate guru Eric Wu, Opendoor (NASDAQ:OPEN) offers a technology-driven, convenient, and streamlined process to buy and sell homes.
Why Do We Think OPEN Will Underperform?
- Number of homes purchased has disappointed over the past two years, indicating weak demand for its offerings
- Historically negative EPS raises concerns for risk-averse investors and makes its earnings potential harder to gauge
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Opendoor is trading at $0.98 per share, or 0.1x forward price-to-sales. Check out our free in-depth research report to learn more about why OPEN doesn’t pass our bar.
TEGNA (TGNA)
Market Cap: $2.96 billion
Spun out of Gannett in 2015, TEGNA (NYSE:TGNA) is a media company operating a network of television stations and digital platforms, focusing on local news and community content.
Why Are We Hesitant About TGNA?
- Products and services aren't resonating with the market as its revenue declined by 2.7% annually over the last two years
- Projected sales decline of 10.7% over the next 12 months indicates demand will continue deteriorating
- Free cash flow margin is forecasted to shrink by 9.5 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
At $18.37 per share, TEGNA trades at 10x forward price-to-earnings. Read our free research report to see why you should think twice about including TGNA in your portfolio.
Lovesac (LOVE)
Market Cap: $272.5 million
Known for its oversized, premium beanbags, Lovesac (NASDAQ:LOVE) is a specialty furniture brand selling modular furniture.
Why Are We Wary of LOVE?
- Lackluster 6.4% annual revenue growth over the last two years indicates the company is losing ground to competitors
- Estimated sales growth of 1.4% for the next 12 months implies demand will slow from its two-year trend
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Lovesac’s stock price of $17.11 implies a valuation ratio of 11.6x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than LOVE.
Stocks We Like More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.