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 to avoid and better alternatives to consider.
Energy Recovery (ERII)
Market Cap: $418.5 million
Having saved far more than a trillion gallons of water, Energy Recovery (NASDAQ: ERII) provides energy recovery devices to the water treatment, oil and gas, and chemical processing sectors.
Why Do We Think Twice About ERII?
- 1.6% annual revenue growth over the last five years was slower than its industrials peers
- Forecasted revenue decline of 32.9% for the upcoming 12 months implies demand will fall off a cliff
- Flat earnings per share over the last five years lagged its peers
Energy Recovery’s stock price of $8.29 implies a valuation ratio of 75.9x forward P/E. To fully understand why you should be careful with ERII, check out our full research report (it’s free).
agilon health (AGL)
Market Cap: $1.70 billion
Transforming how doctors care for seniors by shifting financial incentives from volume to outcomes, agilon health (NYSE: AGL) provides a platform that helps primary care physicians transition to value-based care models for Medicare patients through long-term partnerships and global capitation arrangements.
Why Does AGL Fall Short?
- Customer growth was choppy over the past two years, suggesting that increasing competition is causing challenges in landing new contracts
- Sales are projected to remain flat over the next 12 months as demand decelerates from its two-year trend
- Cash-burning history makes us doubt the long-term viability of its business model
agilon health is trading at $100.38 per share, or 85.6x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why AGL doesn’t pass our bar.
BancFirst (BANF)
Market Cap: $3.79 billion
Operating as a "super community bank" with a decentralized management approach that emphasizes local responsiveness, BancFirst Corporation (NASDAQ: BANF) operates as a financial holding company providing commercial banking services to retail customers and small to medium-sized businesses primarily in Oklahoma and Texas.
Why Are We Hesitant About BANF?
- Annual revenue growth of 7.8% over the last two years was below our standards for the banking sector
- Estimated net interest income growth of 4.7% for the next 12 months implies demand will slow from its five-year trend
- Anticipated 2 percentage point rise in its efficiency ratio suggests its expenses will increase as a percentage of revenue
At $112.76 per share, BancFirst trades at 1.8x forward P/B. Read our free research report to see why you should think twice about including BANF in your portfolio.
Stocks We Like More
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