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. That said, here are three Russell 2000 stocks to steer clear of and some alternatives to watch instead.
BlackLine (BL)
Market Cap: $3.37 billion
Born from the vision to eliminate tedious manual spreadsheet work for accountants, BlackLine (NASDAQ: BL) provides cloud-based software that automates and streamlines financial close, intercompany accounting, and invoice-to-cash processes for accounting departments.
Why Are We Cautious About BL?
- Annual revenue growth of 12.5% over the last three years was below our standards for the software sector
- Products, pricing, or go-to-market strategy may need some adjustments as its 7.2% average billings growth over the last year was weak
- Estimated sales growth of 8.2% for the next 12 months implies demand will slow from its three-year trend
BlackLine’s stock price of $54.73 implies a valuation ratio of 4.8x forward price-to-sales. Dive into our free research report to see why there are better opportunities than BL.
Papa John's (PZZA)
Market Cap: $1.63 billion
Founded by the eclectic John “Papa John” Schnatter, Papa John’s (NASDAQ: PZZA) is a globally recognized pizza delivery and carryout chain known for “better ingredients” and “better pizza”.
Why Does PZZA Give Us Pause?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new diners into its restaurants
- Estimated sales growth of 1.7% for the next 12 months implies demand will slow from its six-year trend
- Challenging supply chain dynamics and bad unit economics are reflected in its low gross margin of 14.8%
At $49.17 per share, Papa John's trades at 23.9x forward P/E. If you’re considering PZZA for your portfolio, see our FREE research report to learn more.
Glacier Bancorp (GBCI)
Market Cap: $5.88 billion
Operating through seventeen distinct bank divisions with local brands and management teams, Glacier Bancorp (NYSE: GBCI) is a bank holding company that provides various banking services to individuals and businesses across eight western states.
Why Do We Think Twice About GBCI?
- Net interest income trends were unexciting over the last five years as its 7.1% annual growth was below the typical banking firm
- Net interest margin of 2.8% reflects its high servicing and capital costs
- Earnings per share fell by 3.1% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
Glacier Bancorp is trading at $49.56 per share, or 1.6x forward P/B. Check out our free in-depth research report to learn more about why GBCI doesn’t pass our bar.
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