Three Russell 2000 Stocks to Avoid and Better Alternatives to Consider

Three Russell 2000 stocks to avoid are Mission Produce (AVO), UFP Technologies (UFPT), and Applied Digital (APLD). AVO's small revenue base, forecasted revenue decline, and low gross margin make it a less attractive investment. UFPT's small revenue base and high valuation ratio also raise concerns. APLD's declining earnings per share, cash burn, and short cash runway increase the probability of a capital raise that dilutes existing shareholders. Better alternatives include other Russell 2000 stocks with stronger fundamentals and growth prospects.

Investors should exercise caution when considering stocks from the Russell 2000 index, particularly those with weak fundamentals and concerning valuation metrics. This article identifies three stocks—Mission Produce (AVO), UFP Technologies (UFPT), and Applied Digital (APLD)—that present potential risks and may not be suitable for long-term investment.

Mission Produce (AVO)

Mission Produce, Inc., trading under the symbol AVO, has shown signs of slowing momentum in August, following a 15% growth in July. The stock underperformed its sector peers and the broader market, with a gain of 2.5% in August. Despite the company's record second-quarter fiscal 2025 revenues, concerns over profitability and near-term headwinds have weighed on its stock performance. Gross profit and adjusted EBITDA declined, reflecting higher costs, lower per-unit profitability, and elevated capital spending. Additionally, the company is trading at a premium valuation of 30.8X, exceeding the industry average of 15.59X. While the stock has shown resilience, investors should approach AVO with caution due to its small revenue base, forecasted revenue decline, and low gross margin [1].

UFP Technologies (UFPT)

UFP Technologies, Inc., trading under the symbol UFPT, has seen mixed performance in recent quarters. The company reported a non-GAAP EPS of $2.50, beating expectations by $0.25, but its revenue of $151.2M missed estimates by $0.35M in the second quarter. The stock's high valuation ratio and small revenue base raise concerns about its potential for growth. The company's acquisition strategy and integration of new assets may not provide sufficient upside to justify its current valuation. Investors should be cautious and consider other opportunities in the Russell 2000 index with stronger fundamentals [2].

Applied Digital (APLD)

Applied Digital, Inc., trading under the symbol APLD, has experienced a decline in earnings per share and a cash burn, which has led to a short cash runway. The company's declining fundamentals and the need for a potential capital raise that could dilute existing shareholders pose risks for investors. The company's focus on emerging technologies and growth opportunities may not be sufficient to offset these challenges. Investors should look for alternatives with stronger financial performance and growth prospects within the Russell 2000 index [2].

Conclusion

While the Russell 2000 index offers a range of investment opportunities, stocks like AVO, UFPT, and APLD present potential risks that investors should consider. These companies face challenges related to revenue growth, profitability, valuation, and cash flow. Investors should focus on other Russell 2000 stocks with stronger fundamentals and growth prospects to build a more resilient portfolio.

References

[1] https://www.nasdaq.com/articles/mission-produces-momentum-fades-august-buy-now-or-stay-cautious
[2] https://marketchameleon.com/Overview/UFPT/Summary/