Index funds that follow popular benchmarks like the S&P 500 and the Nasdaq Composite have delivered impressive returns for long-term investors. However, the Russell 2000 is a different story. To be fair, this index hasn’t exactly lost money. It’s up by 12% year-to-date due to a July rally bringing it up from breakeven. However, the 5-year gain of 43% falls behind the previously mentioned benchmarks.
However, the Russell 2000 still gets attention because some of the top-performing stocks come from that index. Many stocks start off in the Russell 2000 before joining the S&P 500. However, a good portion of future gains are gone by the time a stock joins the S&P 500 compared to its early days in the Russell 2000.
While hunting for treasuring in the Russell 2000 can be exciting, it’s been underperforming benchmarks for a while. These three Russell 2000 stocks are part of the problem and can pose challenges for long-term investors.
BJ’s Restaurants (BJRI)
BJ’s Restaurants (NASDAQ:BJRI) is reeling from an earnings report that investors didn’t like. The company reported 0.1% YOY revenue growth in Q2 FY24 and a concerning 0.6% YOY decline in comparable restaurant sales. That decline indicates that BJ’s is losing market share within its established locations. And while BJ’s delivered high net income growth, low revenue growth rates can’t be overlooked.
Greg Levin, CEO and President of BJ’s Restaurants, mentioned softer sales in April before business picked up in May and June. The company has only opened one restaurant this year and intends to open two additional restaurants in the second half of the year. Those growth rates aren’t impressive and don’t suggest the stock will achieve a meaningful long-term rally.
Shares are down 11% year-to-date and 21% over the past five years. A recent downgrade of BJ’s stock only adds more pressure on long-term investors. As such, I think it is one of the top Russell 2000 stocks to sell.
GEO Group (GEO)
GEO Group (NYSE:GEO) designs, finances, develops and supports secure facilities, immigration processing centers, and community reentry centers. The company also invests in private prisons and mental health facilities worldwide. Shares are off to a good start with a 46% year-to-date gain. However, the stock is in the middle of a correction and is down by 5% over the past five years.
It’s a volatile stock that moves sharply in either direction, but recent results aren’t encouraging. GEO Group generated $605.7 million in the first quarter of 2024, 0.4% lower than the previous quarter last year. Net income dropped to $22.7 million, 19.1% lower than YOY.
Declining revenue and net income are never good news for a stock, and GEO Group has been experiencing the same for several quarters. Shares trade at a 23 P/E ratio, but the forward P/E ratio doesn’t look as promising, given recent challenges. So, I’d definitely consider it when discussing Russell 2000 stocks to sell.
Lands End (LE)
Lands End (NASDAQ:LE) has been off to a good start. Shares of the American clothing and home decor retailer are up by 87% year-to-date. However, the stock is down almost 60% from its 5-year high. However, the company has been dealing with a revenue slide for several quarters.
That trend continued as the company posted a 7.8% YOY revenue decline in the first quarter. Global e-commerce sales dipped by 3.7% YOY, while net losses reached $6.44 million. That figure is worse than the $1.4 million net loss reported in the same quarter last year.
Third-party net revenue was a bright spot in the first quarter. That segment delivered 62.9% YOY revenue growth but makes up less than 15% of total sales. High growth in a small segment won’t make much of a dent in overall results. Other segments were down YOY. Lands End looks overstretched at its current price point and appears to be due for a correction.
On the date of publication, Marc Guberti did not have (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.
