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. That said, here are three Russell 2000 stocks that don’t make the cut and some better choices instead.
EverQuote (EVER)
Market Cap: $878.2 million
Aiming to simplify a once complicated process, EverQuote (NASDAQ: EVER) is an online insurance marketplace where consumers can compare and purchase various types of insurance from different providers
Why Does EVER Worry Us?
- Highly competitive market means it’s on the never-ending treadmill of sales and marketing spend
At $24.29 per share, EverQuote trades at 11.5x forward EV/EBITDA. Check out our free in-depth research report to learn more about why EVER doesn’t pass our bar.
Sonos (SONO)
Market Cap: $1.37 billion
A pioneer in connected home audio systems, Sonos (NASDAQ: SONO) offers a range of premium wireless speakers and sound systems.
Why Are We Out on SONO?
- Products and services aren't resonating with the market as its revenue declined by 6.3% annually over the last two years
- Suboptimal cost structure is highlighted by its history of operating margin losses
- Negative returns on capital show that some of its growth strategies have backfired
Sonos is trading at $11.50 per share, or 54.3x forward P/E. To fully understand why you should be careful with SONO, check out our full research report (it’s free).
NBT Bancorp (NBTB)
Market Cap: $1.99 billion
Tracing its roots back to 1856 when it first opened its doors in Norwich, New York, NBT Bancorp (NASDAQ: NBTB) is a community-oriented financial institution providing banking, wealth management, and insurance services to individuals and businesses across the northeastern United States.
Why Are We Hesitant About NBTB?
- Inferior net interest margin of 3.3% means it must compensate for lower profitability through increased loan originations
- Annual earnings per share growth of 3.1% underperformed its revenue over the last five years, showing its incremental sales were less profitable
- Estimated tangible book value per share growth of 3.7% for the next 12 months implies profitability will slow from its two-year trend
NBT Bancorp’s stock price of $42.18 implies a valuation ratio of 1.2x forward P/B. Read our free research report to see why you should think twice about including NBTB in your portfolio.
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