Small-cap stocks in the Russell 2000 (^RUT) can be a goldmine for investors looking beyond the usual large-cap names. But with less stability and fewer resources than their bigger counterparts, these companies face steeper challenges in scaling their businesses.
Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. Keeping that in mind, here are three Russell 2000 stocks to steer clear of and some alternatives to watch instead.
Rogers (ROG)
Market Cap: $2.44 billion
With roots dating back to 1832, making it one of America's oldest continuously operating companies, Rogers (NYSE:ROG) designs and manufactures specialized engineered materials and components used in electric vehicles, telecommunications, renewable energy, and other high-performance applications.
Why Do We Think ROG Will Underperform?
- Sales were flat over the last five years, indicating it’s failed to expand this cycle
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
- ROIC of 4.4% reflects management’s challenges in identifying attractive investment opportunities, and its decreasing returns suggest its historical profit centers are aging
Rogers is trading at $136.63 per share, or 32.5x forward P/E. Dive into our free research report to see why there are better opportunities than ROG.
WesBanco (WSBC)
Market Cap: $3.67 billion
Tracing its roots back to 1870 in West Virginia, WesBanco (NASDAQ:WSBC) is a bank holding company that provides retail and commercial banking, trust services, insurance, and investment products through its subsidiaries across several Midwestern and Mid-Atlantic states.
Why Does WSBC Worry Us?
- Weak unit economics are reflected in its net interest margin of 3.5%, one of the worst among bank companies
- Incremental sales over the last five years were less profitable as its earnings per share were flat while its revenue grew
- Flat tangible book value per share over the last five years suggests it must find different ways to enhance shareholder value during this cycle
At $38.24 per share, WesBanco trades at 0.9x forward P/B. Read our free research report to see why you should think twice about including WSBC in your portfolio.
Home Bancshares (HOMB)
Market Cap: $5.77 billion
Founded in Conway, Arkansas in 1998 and growing through strategic acquisitions across the Southeast, Home Bancshares (NYSE:HOMB) operates as the bank holding company for Centennial Bank, providing commercial and retail banking services to businesses and individuals across multiple states.
Why Do We Think Twice About HOMB?
- Net interest income trends were unexciting over the last five years as its 9.6% annual growth was below the typical banking firm
- Estimated net interest income growth of 5.9% for the next 12 months implies demand will slow from its five-year trend
- Incremental sales over the last five years were less profitable as its 6.1% annual earnings per share growth lagged its revenue gains
Home Bancshares’s stock price of $28.86 implies a valuation ratio of 1.3x forward P/B. If you’re considering HOMB for your portfolio, see our FREE research report to learn more.
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