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The Russell 2000 (^RUT) 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. Keeping that in mind, here are three Russell 2000 stocks to steer clear of and some alternatives to watch instead.

ON24 (ONTF)

Market Cap: $231.5 million

Started in 1998 as a platform to broadcast press conferences, ON24’s (NYSE:ONTF) software helps organizations organize online webinars and other virtual events and convert prospects into customers.

Why Do We Steer Clear of ONTF?

1. Customers had second thoughts about committing to its platform over the last year as its billings averaged 3.3% declines

2. Sales are projected to tank by 6% over the next 12 months as its demand continues evaporating

3. Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment

ON24 is trading at $5.57 per share, or 1.7x forward price-to-sales. To fully understand why you should be careful with ONTF, check out our full research report (it’s free).

Designer Brands (DBI)

Market Cap: $178 million

Founded in 1969 as a shoe importer and distributor, Designer Brands (NYSE:DBI) is an American discount retailer focused on footwear and accessories.

Why Is DBI Risky?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience

2. Below-average returns on capital indicate management struggled to find compelling investment opportunities

3. High net-debt-to-EBITDA ratio of 9× could force the company to raise capital at unfavorable terms if market conditions deteriorate

At $3.46 per share, Designer Brands trades at 6.9x forward P/E. Read our free research report to see why you should think twice about including DBI in your portfolio, it’s free.

AdaptHealth (AHCO)

Market Cap: $1.19 billion

With a network of approximately 680 locations serving patients across all 50 states, AdaptHealth (NASDAQ:AHCO) provides home medical equipment, supplies, and related services to patients with chronic conditions like sleep apnea, diabetes, and respiratory disorders.

Why Are We Hesitant About AHCO?

1. Annual revenue growth of 3.9% over the last two years was below our standards for the healthcare sector

2. Low returns on capital reflect management’s struggle to allocate funds effectively, and its decreasing returns suggest its historical profit centers are aging

3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value