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 that don’t make the cut and some better choices instead.
PacBio (PACB)
Market Cap: $456.6 million
Pioneering what scientists call "HiFi long-read sequencing," recognized as Nature Methods' method of the year for 2022, Pacific Biosciences (NASDAQ: PACB) develops advanced DNA sequencing systems that enable scientists and researchers to analyze genomes with unprecedented accuracy and completeness.
Why Are We Hesitant About PACB?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 10.6% annually over the last two years
- Negative free cash flow raises questions about the return timeline for its investments
- EBITDA losses may force it to accept punitive lending terms or high-cost debt
PacBio is trading at $1.48 per share, or 2.2x forward price-to-sales. Check out our free in-depth research report to learn more about why PACB doesn’t pass our bar.
Bank of Hawaii (BOH)
Market Cap: $3.06 billion
Founded in 1897 as a financial anchor for the newly annexed Hawaiian territory, Bank of Hawaii (NYSE: BOH) is a financial institution providing banking, investment, and insurance services primarily to customers in Hawaii, Guam, and other Pacific Islands.
Why Do We Think Twice About BOH?
- Net interest income trends were unexciting over the last five years as its 2.8% annual growth was below the typical banking firm
- Weak unit economics are reflected in its net interest margin of 2.4%, one of the worst among bank companies
- Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 2.4% annually
Bank of Hawaii’s stock price of $77.32 implies a valuation ratio of 1.9x forward P/B. To fully understand why you should be careful with BOH, check out our full research report (it’s free).
Atlanticus Holdings (ATLC)
Market Cap: $1.28 billion
Using data analytics to serve the millions of Americans with less-than-perfect credit scores, Atlanticus Holdings (NASDAQ: ATLC) provides technology and services that help lenders offer credit products to consumers often overlooked by traditional financing providers.
Why Are We Wary of ATLC?
- Falling earnings per share over the last four years has some investors worried as stock prices ultimately follow EPS over the long term
At $85.22 per share, Atlanticus Holdings trades at 8.6x forward P/E. Dive into our free research report to see why there are better opportunities than ATLC.
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