The Russell 2000 (^RUT) is home to many small-cap stocks, offering investors the chance to uncover hidden gems before the broader market catches on. However, these companies often come with higher volatility and risk, as their smaller size makes them more vulnerable to economic downturns.
Picking the right small caps isn’t easy, and that’s exactly why StockStory exists - to help you focus on the best opportunities. Keeping that in mind, here are three Russell 2000 stocks that don’t make the cut and some better choices instead.
Vicor (VICR)
Market Cap: $2.37 billion
Founded by a researcher at the Massachusetts Institute of Technology, Vicor (NASDAQ: VICR) provides electrical power conversion and delivery products for a range of industries.
Why Does VICR Fall Short?
- New orders were hard to come by as its backlog was flat over the past two years
- Efficiency has decreased over the last five years as its operating margin fell by 10.9 percentage points
- Waning returns on capital imply its previous profit engines are losing steam
Vicor is trading at $52.80 per share, or 42.2x forward P/E. Check out our free in-depth research report to learn more about why VICR doesn’t pass our bar.
ArcBest (ARCB)
Market Cap: $1.58 billion
Historically owning furniture, banking, and other subsidiaries, ArcBest (NASDAQ: ARCB) offers full-truckload, less-than-truckload, and intermodal deliveries of freight.
Why Should You Dump ARCB?
- Flat unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
- Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 28.1% annually, worse than its revenue
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $69.38 per share, ArcBest trades at 11.2x forward P/E. Dive into our free research report to see why there are better opportunities than ARCB.
Home Bancshares (HOMB)
Market Cap: $5.63 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 Does HOMB Give Us Pause?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- Estimated net interest income growth of 2.3% for the next 12 months implies demand will slow from its five-year trend
- Efficiency ratio is forecasted to remain flat over the next year, suggesting its fixed cost leverage is currently maxed out
Home Bancshares’s stock price of $28.31 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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