The Russell 2000 Index tracks the performance of small-to-mid cap stocks across a variety of industries. Those seeking to capitalize on the growth of smaller companies typically can find many capable businesses in the index. Unfortunately for them, the Russell 2000 has continued to underperform all other major indices, including the S&P500 and Nasdaq. In 2024, despite undergoing a volatile month in April, the S&P500 and Nasdaq have risen 7.50% and 7.63% on a year-to-date basis (YTD) as of Monday. For comparison, the Russell 2000 has ticked up only 1.56%.
All of this means there are a significant number of underperforming stocks that are weighing down the Russell’s overall performance. Investors should be privy of which Russell 2000 stocks to sell.
In this piece, we will go through three Russell 2000 stocks to sell in May before their share prices ultimately crash and burn.
IonQ (IONQ)
The quantum computing space encompasses a hodgepodge of pure-play startups and larger conglomerates who are working to harness the power of quantum computing. If investors thought the rise of generative artificial intelligence was exciting, innovations in quantum computing technology could leap beyond anything we have today. Unfortunately, at least for now, quantum computers have limited use-cases.
IonQ (NYSE:IONQ) rose to fame after using by leveraging am ion-trapping technology to build and commercialize quantum computing systems. The firm’s most recent quantum computing achievement includes Forte, which is a 36 qubit, single-core quantum processor. Qubits differ from normal computation bits in that they can inhabit various states at a time versus the dual state of 1s and 0s that encapsulate conventional bits. The advantage of quantum bits is the additional computational space that allows for better precision and power.
While this technology is novel and groundbreaking, the market for it remains quite limited. IonQ is also burning through cash to make this all work. Without tangible and sustainable growth in the near and medium term, IonQ’s share price will likely struggle. Shares have already fallen 25.1% YTD.
Rigetti Computing (RGTI)
Another pure-play quantum computing firm to make this list is Rigetti Computing (NASDAQ:RGTI). Rigetti is a fully integrated quantum computing business. Not only does the firm manufacture its own quantum computers, but it also designs and creates the processors that go inside of them. Rigetti also makes use of cloud services to impart its quantum computing capabilities to customers. In particular, Rigetti’s Quantum Cloud Services platform allows quantum computer integration into any public and private cloud servers.
RGTI’s shares were one of the best performing stocks in 2024 towards the end of the first quarter. The quantum computing firm’s share price, at one point, had risen more than 124%. Shares have come down significantly from their high, especially as investors continue to assess the tangible applications of Rigetti’s quantum computing capabilities. Moreover, a recent research note from a Needham analyst underscores Rigetti and IonQ will face mounting competition from the likes of D-Wave Quantum (NYSE:QBTS). D-Wave has managed to successfully focus on commercial customers rather than just research institutions and laboratories.
This just goes to show how Rigetti has a lot to overcome before shares begin to rise sustainably.
Sonos (SONO)
The last Russell 2000 stock to make this list is Sonos (NASDAQ:SONO). This company might be familiar to people who like to purchase quality audio products. Sonos has made a name for itself in the business, selling a variety of wireless, portable and home theater speakers and accessories. However, investing into a public company’s stock is not just about whether or not we like the product, but also about the business’s financial figures.
Like many direct-to-consumer technology companies, Sonos has seen its revenue slowdown significantly. In 2023, sales declined 5.5% on a year-over-year basis, and sales growth had already begun to decline in 2022. This is a direct ramification of the toll of higher interest rates and overcapacity in the consumer tech market in general. The COVID-19 pandemic induced growth in spending on consumer electronics as people stayed in their homes. Nowadays, with consumers already owning many products and rates elevated, discretionary spending has dropped.
These macroeconomic conditions do not paint a good picture for SONO, which is why it has made this list. While the company’s shares are up 4.32% for the year, the stock has tumbled more than 17% over the past twelve months.
On the date of publication, Tyrik Torres 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.