The Russell 2000 is packed with potential breakout stocks, thanks to its focus on smaller companies with high growth potential. However, smaller size also means these businesses often lack the resilience and financial flexibility of large-cap firms, making careful selection crucial.

Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. That said, here are three Russell 2000 stocks that don’t make the cut and some better choices instead.

Peloton (PTON)

Market Cap: $2.29 billion

Started as a Kickstarter campaign, Peloton (NASDAQ: PTON) is a fitness technology company known for its at-home exercise equipment and interactive online workout classes.

Why Should You Dump PTON?

1. Number of connected fitness subscribers has disappointed over the past two years, indicating weak demand for its offerings
2. Suboptimal cost structure is highlighted by its history of operating losses
3. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value

Peloton’s stock price of $5.41 implies a valuation ratio of 8.5x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why PTON doesn’t pass our bar.

Accel Entertainment (ACEL)

Market Cap: $915.5 million

Established in Illinois, Accel Entertainment (NYSE:ACEL) is a provider of electronic gaming machines and interactive amusement terminals to bars and entertainment venues.

Why Do We Think Twice About ACEL?

1. Annual revenue growth of 12.7% over the last two years was below our standards for the consumer discretionary sector
2. Estimated sales growth of 6.1% for the next 12 months implies demand will slow from its two-year trend
3. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital

Accel Entertainment is trading at $10.57 per share, or 11.1x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than ACEL.

PAR Technology (PAR)

Market Cap: $2.32 billion

Originally founded in 1968 as a defense contractor for the U.S. government, PAR Technology (NYSE:PAR) provides cloud-based software, payment processing, and hardware solutions that help restaurants manage everything from point-of-sale to customer loyalty programs.

Why Does PAR Give Us Pause?

1. Sales were flat over the last two years, indicating it’s failed to expand this cycle
2. Cash burn makes us question whether it can achieve sustainable long-term growth
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

At $54.35 per share, PAR Technology trades at 63.9x forward EV-to-EBITDA. To fully understand why you should be careful with PAR, check out our full research report (it’s free).

Stocks We Like More

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