The Russell 2000 (^RUT) is packed with potential breakout stocks, thanks to its focus on smaller companies with high growth potential. However, smaller size also means these businesses often lack the resilience and financial flexibility of large-cap firms, making careful selection crucial.
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. Keeping that in mind, here are three Russell 2000 stocks that don’t make the cut and some better choices instead.
FTAI Infrastructure (FIP)
Market Cap: $622.6 million
Spun off from FTAI Aviation in 2021, FTAI Infrastructure (NASDAQ: FIP) invests in and operates infrastructure and related assets across the transportation and energy sectors.
Why Does FIP Fall Short?
- Historical operating margin losses point to an inefficient cost structure
- Historically negative EPS is a worrisome sign for conservative investors and obscures its long-term earnings potential
- Negative free cash flow raises questions about the return timeline for its investments
FTAI Infrastructure is trading at $5.87 per share, or 2x forward EV-to-EBITDA. To fully understand why you should be careful with FIP, check out our full research report (it’s free for active Edge members).
Plug Power (PLUG)
Market Cap: $4.12 billion
Powering forklifts for Walmart’s distribution centers, Plug Power (NASDAQ: PLUG) provides hydrogen fuel cells used to power electric motors.
Why Should You Sell PLUG?
- Sales tumbled by 12.6% annually over the last two years, showing market trends are working against its favor during this cycle
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 6,283 percentage points
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
At $3.50 per share, Plug Power trades at 4.9x forward price-to-sales. If you’re considering PLUG for your portfolio, see our FREE research report to learn more.
TriCo Bancshares (TCBK)
Market Cap: $1.33 billion
Founded in 1975 and headquartered in Chico, California, TriCo Bancshares (NASDAQ: TCBK) operates Tri Counties Bank, providing personal, small business, and commercial banking services through branches across California.
Why Are We Hesitant About TCBK?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 4.2% annually over the last two years
- Annual net interest income growth of 5.7% over the last five years was below our standards for the banking sector
- Net interest margin dropped by 28.7 basis points (100 basis points = 1 percentage point) over the last two years, implying the firm’s loan book profitability fell as competitors entered the market
TriCo Bancshares’s stock price of $41.09 implies a valuation ratio of 1x forward P/B. Read our free research report to see why you should think twice about including TCBK in your portfolio.
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