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.
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 is one Russell 2000 stock that could be the next big thing and two that may face some trouble.
Two Stocks to Sell:
Mission Produce (AVO)
Market Cap: $901.2 million
Founded in 1983 in California, Mission Produce (NASDAQ: AVO) grows, packages, and distributes avocados.
Why Do We Pass on AVO?
- Smaller revenue base of $1.34 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Estimated sales decline of 17% for the next 12 months implies a challenging demand environment
- Gross margin of 12% is an output of its commoditized products
At $12.79 per share, Mission Produce trades at 20.8x forward P/E. Dive into our free research report to see why there are better opportunities than AVO.
Seacoast Banking (SBCF)
Market Cap: $2.92 billion
Founded during the Florida land boom of 1926 and surviving the Great Depression, Seacoast Banking Corporation of Florida (NASDAQ: SBCF) is a financial holding company that provides commercial and retail banking, wealth management, and mortgage services throughout Florida.
Why Does SBCF Fall Short?
- Net interest margin of 3.5% is well below other banks, signaling its loans aren’t very profitable
- Incremental sales over the last five years were less profitable as its earnings per share were flat while its revenue grew
- Products and services are facing significant credit quality challenges during this cycle as tangible book value per share has declined by 1.5% annually over the last five years
Seacoast Banking is trading at $30.39 per share, or 1.2x forward P/B. Read our free research report to see why you should think twice about including SBCF in your portfolio.
One Stock to Buy:
LendingClub (LC)
Market Cap: $1.91 billion
Pioneering peer-to-peer lending in the US before evolving into a digital bank, LendingClub (NYSE: LC) operates a marketplace that connects borrowers with lenders, offering personal loans, auto refinancing, and banking services.
Why Do We Love LC?
- Impressive 28.7% annual revenue growth over the last five years indicates it’s winning market share this cycle
- Performance over the past two years shows its incremental sales were extremely profitable, as its annual earnings per share growth outpaced its revenue gains
- Management team has demonstrated it can invest in profitable ventures through its 11.5% five-year return on equity
LendingClub’s stock price of $16.47 implies a valuation ratio of 9.3x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
High-Quality Stocks for All Market Conditions
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