3 Russell 2000 Stocks Walking a Fine Line

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.

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.

Global Business Travel (GBTG)

Market Cap: $3.21 billion

Holding close ties to American Express, Global Business Travel (NYSE:GBTG) is a comprehensive travel and expense management services provider to corporations worldwide.

Why Is GBTG Not Exciting?

1. Estimated sales growth of 4.5% for the next 12 months implies demand will slow from its three-year trend
2. Gross margin of 60.1% is below its competitors, leaving less money to invest in areas like marketing and R&D
3. Poor free cash flow margin of 6.8% for the last year limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends

Global Business Travel’s stock price of $6.65 implies a valuation ratio of 1.2x forward price-to-sales. To fully understand why you should be careful with GBTG, check out our full research report (it’s free).

Helios (HLIO)

Market Cap: $956.9 million

Founded on the principle of treating others as one wants to be treated, Helios (NYSE:HLIO) designs, manufactures, and sells motion and electronic control components for various sectors.

Why Should You Dump HLIO?

1. Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
2. Earnings per share fell by 2.9% annually over the last five years while its revenue grew, partly because it diluted shareholders
3. 6.2 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position

At $27.32 per share, Helios trades at 12.5x forward price-to-earnings. Read our free research report to see why you should think twice about including HLIO in your portfolio.

Integer Holdings (ITGR)

Market Cap: $4.06 billion

With its name reflecting the mathematical term for "whole" or "complete," Integer Holdings (NYSE:ITGR) is a medical device outsource manufacturer that produces components and systems for cardiac, vascular, neurological, and other medical applications.

Why Are We Hesitant About ITGR?

1. 6.4% annual revenue growth over the last five years was slower than its healthcare peers
2. Revenue base of $1.72 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
3. Free cash flow margin shrank by 6.7 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

Integer Holdings is trading at $112.96 per share, or 19.3x forward price-to-earnings. If you’re considering ITGR for your portfolio, see our FREE research report to learn more.

Stocks We Like More

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