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The Russell 2000 (^RUT) 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.

Picking the right small caps isn’t easy, and that’s exactly why StockStory exists - to help you focus on the best opportunities. Keeping that in mind, here are three Russell 2000 stocks that don’t make the cut and some better choices instead.

Trinity (TRN)

Market Cap: $2.04 billion

Operating under the trade name TrinityRail, Trinity (NYSE:TRN) is a provider of railcar products and services in North America.

Why Are We Cautious About TRN?

1. Sales tumbled by 1.1% annually over the last five years, showing market trends are working against its favor during this cycle

2. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value

3. High net-debt-to-EBITDA ratio of 8× could force the company to raise capital at unfavorable terms if market conditions deteriorate

Trinity is trading at $24.99 per share, or 3.8x forward EV-to-EBITDA. If you’re considering TRN for your portfolio, see our FREE research report to learn more.

TTM Technologies (TTMI)

Market Cap: $2.54 billion

As one of the world's largest printed circuit board manufacturers with facilities spanning North America and Asia, TTM Technologies (NASDAQ:TTMI) manufactures printed circuit boards (PCBs) and radio frequency (RF) components for aerospace, defense, automotive, and telecommunications industries.

Why Is TTMI Risky?

1. Muted 1.3% annual revenue growth over the last two years shows its demand lagged behind its business services peers

2. 9.2 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position

3. ROIC of 4.7% reflects management’s challenges in identifying attractive investment opportunities

TTM Technologies’s stock price of $24.90 implies a valuation ratio of 12x forward P/E. Read our free research report to see why you should think twice about including TTMI in your portfolio, it’s free.

ScanSource (SCSC)

Market Cap: $809 million

Operating as a crucial link in the technology supply chain since 1992, ScanSource (NASDAQ:SCSC) is a hybrid distributor that connects hardware, software, and cloud services from technology suppliers to resellers and business customers.

Why Do We Avoid SCSC?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 10.4% annually over the last two years

2. Sales were less profitable over the last two years as its earnings per share fell by 11.7% annually, worse than its revenue declines

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