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 that don’t make the cut and some better choices instead.
BlackLine (BL)
Market Cap: $1.86 billion
Born from the vision to eliminate tedious manual spreadsheet work for accountants, BlackLine (NASDAQ:BL) provides cloud-based software that automates and streamlines financial close, intercompany accounting, and invoice-to-cash processes for accounting departments.
Why Do We Think Twice About BL?
- Products, pricing, or go-to-market strategy may need some adjustments as its 8.5% average billings growth over the last year was weak
- Projected sales growth of 9.3% for the next 12 months suggests sluggish demand
- Static operating margin over the last year shows it couldn’t become more efficient
At $31.52 per share, BlackLine trades at 2.9x forward price-to-sales. Read our free research report to see why you should think twice about including BL in your portfolio.
WesBanco (WSBC)
Market Cap: $3.31 billion
Tracing its roots back to 1870 in West Virginia, WesBanco (NASDAQ:WSBC) is a bank holding company that provides retail and commercial banking, trust services, insurance, and investment products through its subsidiaries across several Midwestern and Mid-Atlantic states.
Why Does WSBC Give Us Pause?
- Net interest margin of 3.4% reflects its high servicing and capital costs
- Tangible book value per share stagnated over the last five years, limiting its ability to leverage its balance sheet to make additional investments
- Underwhelming 6.8% return on equity reflects management’s difficulties in finding profitable growth opportunities
WesBanco’s stock price of $34.39 implies a valuation ratio of 0.8x forward P/B. To fully understand why you should be careful with WSBC, check out our full research report (it’s free).
Lake City Bank (LKFN)
Market Cap: $1.51 billion
Dating back to 1872 and deeply rooted in Indiana's communities, Lakeland Financial Corporation (NASDAQ:LKFN) operates Lake City Bank, providing commercial and consumer banking services throughout Northern and Central Indiana.
Why Does LKFN Fall Short?
- Muted 5.1% annual revenue growth over the last five years shows its demand lagged behind its banking peers
- Net interest income trends were unexciting over the last five years as its 6% annual growth was below the typical banking firm
- Performance over the past five years shows its incremental sales were less profitable, as its 3.9% annual earnings per share growth trailed its revenue gains
Lake City Bank is trading at $61.09 per share, or 1.9x forward P/B. Dive into our free research report to see why there are better opportunities than LKFN.
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