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 that don’t make the cut and some better choices instead.
Olaplex (OLPX)
Market Cap: $761 million
Rising to fame on TikTok because of its “bond building" hair products, Olaplex (NASDAQ: OLPX) offers products and treatments that repair the damage caused by traditional heat and chemical-based styling goods.
Why Are We Hesitant About OLPX?
- Sales tumbled by 17.3% annually over the last three years, showing consumer trends are working against its favor
- Performance over the past three years shows each sale was less profitable as its earnings per share dropped by 50.8% annually, worse than its revenue
- Free cash flow margin dropped by 14.7 percentage points over the last year, implying the company became more capital intensive as competition picked up
At $1.15 per share, Olaplex trades at 13x forward P/E. Check out our free in-depth research report to learn more about why OLPX doesn’t pass our bar.
iHeartMedia (IHRT)
Market Cap: $608 million
Occasionally featuring celebrity hosts like Ryan Seacrest on its shows, iHeartMedia (NASDAQ: IHRT) is a leading multimedia company renowned for its extensive network of radio stations, digital platforms, and live events across the globe.
Why Should You Dump IHRT?
- Flat sales over the last two years suggest it must innovate and find new ways to grow
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
iHeartMedia is trading at $4.30 per share, or 0.9x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including IHRT in your portfolio.
Radian Group (RDN)
Market Cap: $4.81 billion
Founded during the housing boom of 1977 and weathering multiple real estate cycles since, Radian Group (NYSE: RDN) provides mortgage insurance and real estate services, helping lenders manage risk and homebuyers achieve affordable homeownership.
Why Is RDN Not Exciting?
- Net premiums earned contracted by 3.2% annually over the last five years, showing unfavorable market dynamics this cycle
- Combined ratio worsened by 13.8 percentage points over the last two years as its sales cratered
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 2.2% annually
Radian Group’s stock price of $35.49 implies a valuation ratio of 1x forward P/B. Dive into our free research report to see why there are better opportunities than RDN.
Stocks We Like More
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