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. That said, here are three Russell 2000 stocks that don’t make the cut and some better choices instead.
Alarm.com (ALRM)
Market Cap: $2.93 billion
Processing over 325 billion data points annually from more than 150 million connected devices, Alarm.com (NASDAQ: ALRM) provides cloud-based platforms that enable residential and commercial property owners to remotely monitor and control their security, video, energy, and other connected devices.
Why Does ALRM Give Us Pause?
- Products, pricing, or go-to-market strategy may need some adjustments as its 7.4% average billings growth over the last year was weak
- Estimated sales growth of 3.7% for the next 12 months implies demand will slow from its three-year trend
- High servicing costs result in a relatively inferior gross margin of 65.8% that must be offset through increased usage
At $58.75 per share, Alarm.com trades at 3.5x forward price-to-sales. Check out our free in-depth research report to learn more about why ALRM doesn’t pass our bar.
Gibraltar (ROCK)
Market Cap: $1.89 billion
Gibraltar (NASDAQ: ROCK) makes renewable energy, agriculture technology and infrastructure products. Its mission statement is to make everyday living more sustainable.
Why Do We Think Twice About ROCK?
- Sales tumbled by 5.4% annually over the last two years, showing market trends are working against its favor during this cycle
- High input costs result in an inferior gross margin of 25.4% that must be offset through higher volumes
Gibraltar’s stock price of $64.06 implies a valuation ratio of 12.8x forward P/E. Read our free research report to see why you should think twice about including ROCK in your portfolio.
Banner Bank (BANR)
Market Cap: $2.33 billion
Founded in 1890 in Walla Walla, Washington, and evolving through more than a century of economic cycles, Banner Corporation (NASDAQ: BANR) operates Banner Bank, providing commercial banking services, loans, and financial products to individuals and businesses across Washington, Oregon, California, Idaho, and Utah.
Why Are We Wary of BANR?
- Sales stagnated over the last two years and signal the need for new growth strategies
- Muted 3.6% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Sales over the last two years were less profitable as its earnings per share fell by 7.9% annually while its revenue was flat
Banner Bank is trading at $67.26 per share, or 1.2x forward P/B. If you’re considering BANR for your portfolio, see our FREE research report to learn more.
High-Quality Stocks for All Market Conditions
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