When most people think of index funds, they gravitate toward the S&P 500 and the Nasdaq Composite. It’s no surprise that these benchmarks receive the most attention. They have delivered solid historical returns and are filled with recognizable corporations like the Magnificent Seven. Those two indices also attract many investors because many of the alternatives aren’t as good. For instance, the Russell 2000 is only up by 9% year-to-date and has gained 41% over the past five years. That’s because the fund contains many small-cap companies that have declining revenue and net income. You can find hidden gems in the Russell 2000, but there are also plenty of underperforming Russell 2000 stocks. Furthermore, the stock market is filled with large-cap stocks that have lagged the benchmark.
While it’s hard to find stocks that outperform all three indices, some stocks manage to underperform the Russell 2000. These three stocks look like they can generate more losses and have fallen behind the Russell 2000 year-to-date.
Disney (DIS)
Disney (NYSE:DIS) enjoyed a nice run-up to start the year as speculations activist investors gaining ground in the company draw plenty of attention. However, the bid fizzled out, along with most of Disney’s stock gains. Shares are up by 6% year-to-date but have lost more than 20% of their value from the 2024 peak. The stock is down by 32% over the past five years, and a few more bad days can result in a negative return over the past decade.
Modern Disney movies don’t have the same draw as older movies. The company could regularly fill movie theaters in its heyday, especially leading up to Avengers: Endgame. A desperate attempt to recapture the magic with unnecessary remakes is part of the reason Disney only grew its revenue by 1% YOY in the second quarter.
Questionable leadership, disappointing long-term returns, and activist initiatives that went nowhere suggest that investors may want to stay away from Disney stock. A potential strike will only make things worse.
Workhorse (WKHS)
While Workhorse (NASDAQ:WKHS) is on its way out of business, it earns a spot in this column due to a recent 50% surge that took place within 2 weeks this month. It’s one of the worst underperforming Russell 2000 stocks. Workhorse is already down by 20% since that stretch, and shares are down by 77% year-to-date.
Workhorse is one of the many EV stocks that captured investors’ imaginations as long as they didn’t look at pesky things like fundamentals and long-term viability. Workhorse has commercial vehicles, but it’s never a good sign when the company publishes a press release about regaining compliance with Nasdaq’s continued listing requirements.
The EV maker only generated $1.3 million in Q1 2024 revenue. That’s not good, at all. It’s a 21% YOY drop for a company that’s valued at roughly $35 million. Workhorse also reported a $29.2 million net loss which is higher than the $25.0 million net loss in the same period last year. The company hopelessly burns through far more money than it’s making with bankruptcy feeling inevitable.
Dropbox (DBX)
Dropbox (NASDAQ:DBX) is the final stock on this list. Shares are down by 20% year-to-date which makes the Russell 2000 9% year-to-date gain look impressive. Shares are also down by 5% over the past five years.
The company helps individuals and businesses store documents online. Drop makes it easier for teams across an organization to access important resources, but there’s a problem with the business model. Dropbox does not have a competitive moat. Big tech companies offer similar solutions that let people and businesses store digital files. Suitable replacements for Dropbox are available.
Revenue only inched up by 3.3% YOY in the first quarter. Meanwhile, the number of paid users only increased by 1.4% YOY. While GAAP net income almost doubled YOY, investors can’t expect that to continue if revenue remains in the low single digits and very few users are creating new accounts. Don’t let the stock’s 14 P/E ratio trick you.
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.comPublishing 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.