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. That said, here is one Russell 2000 stock that could deliver strong gains and two best left off your watchlist.
Two Stocks to Sell:
First Bancorp (FBNC)
Market Cap: $2.41 billion
Founded during the Great Depression in 1934 and originally known as Montgomery Bancorp, First Bancorp (NASDAQ: FBNC) is a community-oriented commercial bank providing a wide range of financial services to businesses and individuals in North and South Carolina.
Why Does FBNC Give Us Pause?
- 2% annual revenue growth over the last two years was slower than its banking peers
- Inferior net interest margin of 3.1% means it must compensate for lower profitability through increased loan originations
- Earnings per share were flat over the last two years while its revenue grew, showing its incremental sales were less profitable
At $58.22 per share, First Bancorp trades at 1.5x forward P/B. If you’re considering FBNC for your portfolio, see our FREE research report to learn more.
Eastern Bank (EBC)
Market Cap: $4.35 billion
Founded in 1818 as one of America's oldest mutual banks before converting to a public company in 2020, Eastern Bankshares (NASDAQ: EBC) operates as a bank holding company providing commercial and retail banking services primarily in Massachusetts, New Hampshire, and Rhode Island.
Why Is EBC Not Exciting?
- Annual tangible book value per share declines of 5.2% for the past five years show its capital management struggled during this cycle
- Projected tangible book value per share growth of 3.1% for the next 12 months suggests sluggish capital generation
- ROE of 2.7% reflects management’s challenges in identifying attractive investment opportunities
Eastern Bank’s stock price of $19.55 implies a valuation ratio of 1x forward P/B. Dive into our free research report to see why there are better opportunities than EBC.
One Stock to Watch:
BrightSpring Health Services (BTSG)
Market Cap: $8.62 billion
Founded in 1974, BrightSpring Health Services (NASDAQ: BTSG) offers home health care, hospice, neuro-rehabilitation, and pharmacy services.
Why Does BTSG Catch Our Eye?
- Annual revenue growth of 20.9% over the last two years was superb and indicates its market share increased during this cycle
- Revenue base of $12.91 billion gives it economies of scale and some negotiating power
- Sales outlook for the upcoming 12 months implies the business will stay on its desirable two-year growth trajectory
BrightSpring Health Services is trading at $41.75 per share, or 27.2x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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