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. That said, here are three Russell 2000 stocks to steer clear of and some alternatives to watch instead.
United Community Banks (UCB)
Market Cap: $4.13 billion
Starting as a small community bank in 1950 and expanding through strategic acquisitions across the Southeast, United Community Banks (NYSE:UCB) is a regional bank holding company that provides financial services including loans, deposits, wealth management, and merchant services across the southeastern United States.
Why Does UCB Fall Short?
- Muted 8% annual revenue growth over the last two years shows its demand lagged behind its banking peers
- Incremental sales over the last five years were less profitable as its earnings per share were flat while its revenue grew
- Projected tangible book value per share is flat for the next 12 months, implying profitability will slow from its two-year trend
United Community Banks is trading at $34.24 per share, or 1.1x forward P/B. Dive into our free research report to see why there are better opportunities than UCB.
Customers Bancorp (CUBI)
Market Cap: $2.60 billion
Originally founded with a "high-tech, high-touch" branch-light banking strategy, Customers Bancorp (NYSE:CUBI) is a bank holding company that provides commercial and consumer banking services through its Customers Bank subsidiary, with a focus on business lending and digital banking.
Why Are We Cautious About CUBI?
- Annual net interest income growth of 9.5% over the last five years was below our standards for the banking sector
- Net interest margin of 3.2% is well below other banks, signaling its loans aren’t very profitable
- Performance over the past five years shows its incremental sales were less profitable, as its 4.2% annual earnings per share growth trailed its revenue gains
At $77.09 per share, Customers Bancorp trades at 1.1x forward P/B. To fully understand why you should be careful with CUBI, check out our full research report (it’s free).
Community Bank (CBU)
Market Cap: $3.24 billion
Tracing its roots back to 1866 in upstate New York, Community Financial System (NYSE:CBU) is a financial holding company that provides banking, employee benefits, wealth management, and insurance services to retail, commercial, and municipal customers.
Why Does CBU Worry Us?
- 7.5% annual net interest income growth over the last five years was slower than its banking peers
- Annual earnings per share growth of 4% underperformed its revenue over the last five years, showing its incremental sales were less profitable
- Annual tangible book value per share declines of 1.4% for the past five years show its capital management struggled during this cycle
Community Bank’s stock price of $61.56 implies a valuation ratio of 1.5x forward P/B. Read our free research report to see why you should think twice about including CBU in your portfolio.
Stocks We Like More
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