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 are three Russell 2000 stocks to avoid and better alternatives to consider.
Tennant (TNC)
Market cap: $1.24 billion
As the world’s largest manufacturer of autonomous mobile robots, Tennant (NYSE: TNC) designs, manufactures, and sells cleaning products to various sectors.
Why Should You Sell TNC?
- Annual sales declines of 1.3% for the past two years show its products and services struggled to connect with the market during this cycle
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
- Diminishing returns on capital suggest its earlier profit pools are drying up
Tennant’s stock price of $72.87 implies a valuation ratio of 13.5x forward P/E. To fully understand why you should be careful with TNC, check out our full research report (it’s free).
Trustmark (TRMK)
Market cap: $2.64 billion
Tracing its roots back to 1889 in Mississippi, Trustmark (NASDAQ: TRMK) is a financial services organization providing banking, wealth management, insurance, and mortgage services across five southeastern states.
Why Does TRMK Give Us Pause?
- Annual net interest income growth of 9.2% over the last five years was below our standards for the banking sector
- Earnings growth underperformed the sector average over the last five years as its EPS grew by just 6.8% annually
- Annual tangible book value per share growth of 6.4% over the last two years was below our standards for the banking sector
Trustmark is trading at $45.63 per share, or 1.2x forward P/B. Dive into our free research report to see why there are better opportunities than TRMK.
Republic Bancorp (RBCAA)
Market cap: $1.82 billion
With roots dating back to 1974 and operating across multiple states including Kentucky, Indiana, Florida, Ohio, and Tennessee, Republic Bancorp (NASDAQGS:RBCA.A) is a Kentucky-based financial holding company that operates a bank offering traditional banking, mortgage services, and specialized financial products.
Why Do We Think Twice About RBCAA?
- Net interest income trends were unexciting over the last five years as its 5.9% annual growth was below the typical banking firm
- Estimated net interest income growth of 6.9% for the next 12 months is soft and implies weaker demand
- Estimated tangible book value per share growth of 7.3% for the next 12 months implies profitability will slow from its two-year trend
At $92.86 per share, Republic Bancorp trades at 1.5x forward P/B. If you’re considering RBCAA for your portfolio, see our FREE research report to learn more.
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