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.
The high-risk, high-reward nature of the Russell 2000 makes stock selection critical, and we’re here to guide you toward the right ones. Keeping that in mind, here are three Russell 2000 stocks that don’t make the cut and some better choices instead.
EnerSys (ENS)
Market Cap: $6.54 billion
Supplying batteries that power equipment as big as mining rigs, EnerSys (NYSE: ENS) manufactures various kinds of batteries for a range of industries.
Why Do We Think Twice About ENS?
- Flat unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
- Projected sales growth of 2% for the next 12 months suggests sluggish demand
- Gross margin of 26.3% is below its competitors, leaving less money to invest in areas like marketing and R&D
EnerSys is trading at $176.79 per share, or 15.6x forward P/E. If you’re considering ENS for your portfolio, see our FREE research report to learn more.
Kforce (KFRC)
Market Cap: $478.9 million
With nearly 60 years of matching skilled professionals with the right opportunities, Kforce (NYSE: KFRC) is a professional staffing company that specializes in placing technology and finance experts with businesses on both temporary and permanent bases.
Why Should You Dump KFRC?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 1% annually over the last five years
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
- Eroding returns on capital suggest its historical profit centers are aging
At $27.94 per share, Kforce trades at 12.5x forward P/E. To fully understand why you should be careful with KFRC, check out our full research report (it’s free).
Banner Bank (BANR)
Market Cap: $2.05 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 Do We Think BANR Will Underperform?
- Muted 4.1% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 1.5% annually
- Estimated tangible book value per share growth of 9.3% for the next 12 months implies profitability will slow from its two-year trend
Banner Bank’s stock price of $60.02 implies a valuation ratio of 1x forward P/B. Check out our free in-depth research report to learn more about why BANR doesn’t pass our bar.
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