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.
The high-risk, high-reward nature of the Russell 2000 makes stock selection critical, and we’re here to guide you toward the right ones. That said, here are three Russell 2000 stocks that don’t make the cut and some better choices instead.
Triumph Financial (TFIN)
Market Cap: $1.76 billion
Originally focused on traditional banking before pivoting to serve the transportation sector, Triumph Financial (NYSE:TFIN) provides specialized financial services to the trucking industry, including payments processing, factoring, banking, and data intelligence solutions.
Why Do We Pass on TFIN?
- Net interest income trends were unexciting over the last five years as its 1.8% annual growth was below the typical banking firm
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 22.2% annually while its revenue grew
- Tier one capital ratio of 9.9% raises concerns about the firm’s ability to maintain adequate liquidity
At $73.76 per share, Triumph Financial trades at 1.9x forward P/B. Check out our free in-depth research report to learn more about why TFIN doesn’t pass our bar.
BankUnited (BKU)
Market Cap: $3.33 billion
Born from the ashes of a failed Florida thrift during the 2009 financial crisis, BankUnited (NYSE:BKU) is a regional bank that provides commercial lending, deposit services, and treasury solutions to businesses and consumers primarily in Florida and the New York metropolitan area.
Why Is BKU Risky?
- Annual net interest income growth of 5.5% over the last five years was below our standards for the banking sector
- Weak unit economics are reflected in its net interest margin of 2.9%, one of the worst among bank companies
- Earnings per share were flat over the last five years while its revenue grew, showing its incremental sales were less profitable
BankUnited is trading at $46.09 per share, or 1.1x forward P/B. Dive into our free research report to see why there are better opportunities than BKU.
Ocular Therapeutix (OCUL)
Market Cap: $1.85 billion
Pioneering a drug delivery platform that can eliminate the need for monthly eye injections, Ocular Therapeutix (NASDAQ:OCUL) develops sustained-release treatments for eye diseases using its proprietary ELUTYX bioresorbable hydrogel technology that gradually releases medication.
Why Do We Steer Clear of OCUL?
- Sales tumbled by 6.7% annually over the last two years, showing market trends are working against it during this cycle
- Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 422.2 percentage points
- 325.1 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Ocular Therapeutix’s stock price of $8.48 implies a valuation ratio of 35.6x forward price-to-sales. If you’re considering OCUL for your portfolio, see our FREE research report to learn more.
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