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.
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:
Simply Good Foods (SMPL)
Market Cap: $2.63 billion
Best known for its Atkins brand that was inspired by the popular diet of the same name, Simply Good Foods (NASDAQ:SMPL) is a packaged food company whose offerings help customers achieve their healthy eating or weight loss goals.
Why Is SMPL Not Exciting?
- Subscale operations are evident in its revenue base of $1.46 billion, meaning it has fewer distribution channels than its larger rivals
- Estimated sales growth of 1.4% for the next 12 months implies demand will slow from its three-year trend
- Capital intensity has ramped up over the last year as its free cash flow margin decreased by 5.5 percentage points
Simply Good Foods is trading at $26.18 per share, or 13.1x forward P/E. If you’re considering SMPL for your portfolio, see our FREE research report to learn more.
Bank of Hawaii (BOH)
Market Cap: $2.65 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 Are We Wary of BOH?
- Loans are facing end-market challenges during this cycle, as seen in its flat net interest income over the last five years
- Weak unit economics are reflected in its net interest margin of 2.2%, one of the worst among bank companies
- Sales were less profitable over the last two years as its earnings per share fell by 15.3% annually, worse than its revenue declines
Bank of Hawaii’s stock price of $66.62 implies a valuation ratio of 1.8x forward P/B. Dive into our free research report to see why there are better opportunities than BOH.
One Stock to Watch:
Origin Bancorp (OBK)
Market Cap: $1.10 billion
Founded in 1912 during the early boom days of Louisiana banking, Origin Bancorp (NYSE:OBK) is a financial holding company that provides personalized banking services to businesses, municipalities, and individuals across Texas, Louisiana, and Mississippi.
Why Do We Like OBK?
- Market share has increased this cycle as its 12.5% annual net interest income growth over the last five years was exceptional
- Additional sales over the last five years increased its profitability as the 17.3% annual growth in its earnings per share outpaced its revenue
- ROE punches in at 10.1%, illustrating management’s expertise in identifying profitable investments
At $35.25 per share, Origin Bancorp trades at 0.9x forward P/B. Is now the time to initiate a position? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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