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.
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 to avoid and better alternatives to consider.
OneWater (ONEW)
Market Cap: $203.5 million
A public company since early 2020, OneWater Marine (NASDAQ:ONEW) sells boats, yachts, and other marine products.
Why Should You Sell ONEW?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Earnings per share decreased by more than its revenue over the last three years, showing each sale was less profitable
- 5× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
OneWater is trading at $12.20 per share, or 11.5x forward P/E. If you’re considering ONEW for your portfolio, see our FREE research report to learn more.
Albany (AIN)
Market Cap: $1.82 billion
Founded in 1895, Albany (NYSE:AIN) is a global textiles and materials processing company, specializing in machine clothing for paper mills and engineered composite structures for aerospace and other industries.
Why Is AIN Risky?
- Annual sales declines of 1.1% for the past two years show its products and services struggled to connect with the market during this cycle
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 5.7% annually
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Albany’s stock price of $64.10 implies a valuation ratio of 1.5x trailing 12-month price-to-sales. Read our free research report to see why you should think twice about including AIN in your portfolio.
Northwest Bancshares (NWBI)
Market Cap: $2.31 billion
Founded in 1896 and operating across Pennsylvania, New York, Ohio, and Indiana, Northwest Bancshares (NASDAQ:NWBI) is a bank holding company that operates Northwest Bank, providing personal and business banking, investment management, and trust services.
Why Does NWBI Worry Us?
- 7.1% annual net interest income growth over the last five years was slower than its banking peers
- Annual earnings per share growth of 2.8% underperformed its revenue over the last five years, showing its incremental sales were less profitable
- Annual tangible book value per share growth of 1.4% over the last five years was below our standards for the banking sector
At $15.79 per share, Northwest Bancshares trades at 1.2x forward P/B. Check out our free in-depth research report to learn more about why NWBI doesn’t pass our bar.
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