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.
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.
Zumiez (ZUMZ)
Market Cap: $397.7 million
With store associates called “Zumiez Stash Members”, Zumiez (NASDAQ: ZUMZ) is a specialty retailer of street and skate apparel, footwear, and accessories.
Why Is ZUMZ Risky?
- Reduction in its number of stores signals a focus on profitability through targeted consolidation
- Smaller revenue base of $929.1 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Underwhelming 3.1% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its decreasing returns suggest its historical profit centers are aging
Zumiez’s stock price of $23.05 implies a valuation ratio of 24.2x forward P/E. Check out our free in-depth research report to learn more about why ZUMZ doesn’t pass our bar.
Jack in the Box (JACK)
Market Cap: $205.6 million
Delighting customers since its inception in 1951, Jack in the Box (NASDAQ: JACK) is a distinctive fast-food chain known for its bold flavors, innovative menu items, and quirky marketing.
Why Should You Sell JACK?
- Recent restaurant closures and weak same-store sales point to soft demand and an operational restructuring
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
At $10.91 per share, Jack in the Box trades at 3x forward P/E. Dive into our free research report to see why there are better opportunities than JACK.
Dime Community Bancshares (DCOM)
Market Cap: $1.60 billion
With roots dating back to 1910 and a name that evokes the historic "dime savings banks" of America's past, Dime Community Bancshares (NASDAQ: DCOM) is a New York-based bank holding company that provides commercial banking and financial services to businesses and consumers throughout Greater Long Island.
Why Is DCOM Not Exciting?
- Net interest margin of 2.9% is well below other banks, signaling its loans aren’t very profitable
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 1.1% annually
- Annual tangible book value per share growth of 5.9% over the last two years was below our standards for the banking sector
Dime Community Bancshares is trading at $36.21 per share, or 1.1x forward P/B. Read our free research report to see why you should think twice about including DCOM in your portfolio.
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