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. Keeping that in mind, here are three Russell 2000 stocks to steer clear of and some alternatives to watch instead.
Wabash (WNC)
Market Cap: $460.1 million
With its first trailer reportedly built on two sawhorses, Wabash (NYSE: WNC) offers semi trailers, liquid transportation containers, truck bodies, and equipment for moving goods.
Why Is WNC Risky?
- Backlog has dropped by 36.2% on average over the past two years, suggesting it’s losing orders as competition picks up
- Sales were less profitable over the last five years as its earnings per share fell by 22.3% annually, worse than its revenue declines
- High net-debt-to-EBITDA ratio of 8× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Wabash is trading at $11.24 per share, or 15x forward P/E. Read our free research report to see why you should think twice about including WNC in your portfolio.
Pitney Bowes (PBI)
Market Cap: $2.11 billion
With a century-long history dating back to 1920 and processing over 15 billion pieces of mail annually, Pitney Bowes (NYSE: PBI) provides shipping, mailing technology, logistics, and financial services to businesses of all sizes.
Why Is PBI Not Exciting?
- Annual sales declines of 9.5% for the past five years show its products and services struggled to connect with the market during this cycle
- Projected sales decline of 1.3% over the next 12 months indicates demand will continue deteriorating
- High net-debt-to-EBITDA ratio of 5× could force the company to raise capital at unfavorable terms if market conditions deteriorate
At $12.22 per share, Pitney Bowes trades at 9.6x forward P/E. If you’re considering PBI for your portfolio, see our FREE research report to learn more.
WaFd Bank (WAFD)
Market Cap: $2.49 billion
Founded in 1917 and rebranded from Washington Federal in 2023, WaFd (NASDAQ: WAFD) is a bank holding company that provides lending, deposit services, and insurance through its Washington Federal Bank subsidiary across eight western states.
Why Does WAFD Give Us Pause?
- Annual net interest income growth of 7% over the last five years was below our standards for the banking sector
- Net interest margin shrank by 102.2 basis points (100 basis points = 1 percentage point) over the last two years, suggesting the profitability of its loan book is decreasing or the market is becoming more competitive
- Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
WaFd Bank’s stock price of $31.58 implies a valuation ratio of 0.9x forward P/B. To fully understand why you should be careful with WAFD, check out our full research report (it’s free).
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