The Russell 2000 index is a collection of the smallest 2000 stocks within the overall Russell index. It is a controversial pick for many investors. While it provides significant exposure to the small-cap market, it also carries with it some of the risk (and reward) small-cap companies hold. This means that it is much more volatile than other similarly diversified indices. Additionally, historically speaking, it has underperformed several indices, including the S&P 500, which is essentially the opposite of the Russell; it is a collection of the 500 largest American companies. Today, we’ll take a look at the Russell 2000 stocks to sell that are simply too volatile to risk.
While there are many companies in the Russell that are great picks and have offered investors tremendous growth, there are also companies that disappoint investors time and time again. This includes everything from meme stocks to companies that have been underperforming and have seen a sustained drop in revenue. Thus, investors should stay vigilant, especially if they invest in companies in the index instead of the index itself.
GameStop (GME)
GameStop (NYSE:GME) After the pandemic, almost all of us got familiar with GameStop. The quintessential video game retailer turned into a meme stock overnight with Keith Gill (Roaring Kitty) behind it. Especially after a recent resurgence, GME remains a company you should sell, especially at the price of almost $22, which is at risk of an implied downside of 62%.
The company hasn’t been profitable or has operated on negligible profit for the last few years, essentially being a billion-dollar cash-burning machine. However, it gets worse for investors; GME has missed both Q1 and Q2 2024 EPS estimates. Even in the bull case, analysts estimate the company will lose up to half of its current value within the next year.
A lack of strong catalysts also plagues GME. Consumers are increasingly relying on online shopping, and GME simply doesn’t have the infrastructure to compete with the likes of Amazon (NASDAQ:AMZN), which offers same-day or overnight delivery — something GME is lacking. While subscriptions like GameStop Pro, the GameStop credit card, etc. are things to look out for, lots of debt and negative growth will be a significant risk. Thus, GME is on our list of Russell 2000 stocks to sell.
AMC Entertainment (AMC)
AMC Entertainment Holdings (NYSE:AMC) is yet another pandemic-era meme stock that will leave return-hungry investors starving. While it is quite volatile as it stands, the company’s niche market of screening movies is also likely to fail in the long run. At a stock price of just over $5, it is down nearly 18% year-to-date, and I expect it to keep falling.
AMC’s financial details are, in short, a mess. The company has a negative profit and operating margin, as well as a significant quarterly revenue decline of 23.5%. The company has over $8.5 billion in debt, with only $770 million in cash. Additionally, approximately 15% of floating shares are shorted, showing waning industrial support and rising skepticism.
Additionally, the movie theater industry in the U,S, has declined significantly — around 6.8% per year on average between 2018 and 2023. The rise of home entertainment systems — popularized by the pandemic — plays into this heavily. Thus, I believe that should the overall industry continue to deteriorate, AMC will remain a sell.
Plug Power (PLUG)
Plug Power (NASDAQ:PLUG) is a company that many of you will be unfamiliar with. This is because of the fact that PLUG makes hydrogen and other fuel cell based technology. PLUG seems to be betting heavily on hydrogen-powered electric vehicles, something that remains a distant and seemingly increasingly unlikely possibility due to supply chain issues.
PLUG is currently trading at a price of $1.98. It has missed earnings per share estimates for the last four quarters, indicating that there is something “wrong” with the company. The profit margin is -216.8%, which is extremely bad, even for a company that is as innovative (read capital intensive) as PLUG.
Additionally, all that investment into PLUG doesn’t seem to be paying off; the company is staring at a year-over-year quarterly revenue decline of almost 45%. And while leadership changes are occurring, the company has no strong catalyst right now, which is a big threat and appears to be priced in, as 30% of the float is shorted right now.
On the date of publication, Achintya Pasricha did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
