The Russell 2000 (^RUT) is packed with potential breakout stocks, thanks to its focus on smaller companies with high growth potential. However, smaller size also means these businesses often lack the resilience and financial flexibility of large-cap firms, making careful selection crucial.
Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. Keeping that in mind, here is one Russell 2000 stock that could be the next big thing and two that may face some trouble.
Two stocks to sell:
First BanCorp (FBP)
Market cap: $3.98 billion
Tracing its roots back to 1948 in San Juan, First BanCorp (NYSE: FBP) is a bank holding company that provides commercial banking, consumer financing, mortgage services, and insurance products across Puerto Rico, the U.S. mainland, and the Caribbean.
Why Do We Think Twice About FBP?
- Sales trends were unexciting over the last five years as its 4.3% annual growth was below the typical banking company
- Annual net interest income growth of 4.5% over the last five years was below our standards for the banking sector
- Estimated tangible book value per share growth of 6.8% for the next 12 months implies profitability will slow from its two-year trend
At $26.59 per share, First BanCorp trades at 2.1x forward P/B. Dive into our free research report to see why there are better opportunities than FBP.
Cathay General Bancorp (CATY)
Market cap: $4.36 billion
Founded in 1962 with its first branch in Los Angeles' Chinatown, Cathay General Bancorp (NASDAQ: CATY) operates Cathay Bank, providing commercial banking services to businesses and individuals with a strong presence in Asian-American communities.
Why Does CATY Fall Short?
- Sales trends were unexciting over the last five years as its 6.9% annual growth was below the typical banking company
- Net interest income trends were unexciting over the last five years as its 6.6% annual growth was below the typical banking firm
- Earnings growth underperformed the sector average over the last five years as its EPS grew by just 7.4% annually
Cathay General Bancorp is trading at $65.98 per share, or 1.4x forward P/B. To fully understand why you should be careful with CATY, check out our full research report (it’s free).
One stock to watch:
Napco (NSSC)
Market cap: $1.14 billion
Protecting everything from schools to government facilities since 1969, Napco Security Technologies (NASDAQ: NSSC) manufactures electronic security devices, access control systems, and communication services for intrusion and fire alarm systems.
Why Is NSSC on Our Radar?
- Annual revenue growth of 10.8% over the last five years was superb and indicates its market share increased during this cycle
- NSSC is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders, and its rising cash conversion increases its margin of safety
- Returns on capital are climbing as management makes more lucrative bets
Napco’s stock price of $32.85 implies a valuation ratio of 19.9x forward P/E. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
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