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 that don’t make the cut and some better choices instead.
Teladoc (TDOC)
Market Cap: $1.68 billion
Founded to help people in rural areas get online medical consultations, Teladoc Health (NYSE: TDOC) is a telemedicine platform that facilitates remote doctor’s visits.
Why Are We Wary of TDOC?
- Sales were flat over the last three years, indicating it’s failed to expand its business
- Decision to emphasize platform growth over monetization has contributed to 9% annual declines in its average revenue per user
- Sales are projected to be flat over the next 12 months and imply weak demand
At $9.22 per share, Teladoc trades at 6.7x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than TDOC.
United Bankshares (UBSI)
Market Cap: $6.34 billion
With roots dating back to 1982 and a strong presence in the Mid-Atlantic region, United Bankshares (NASDAQ: UBSI) is a bank holding company that provides commercial and retail banking services through its United Bank subsidiary across multiple states.
Why Are We Hesitant About UBSI?
- Muted 8.8% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Earnings growth underperformed the sector average over the last five years as its EPS grew by just 2.5% annually
- Estimated tangible book value per share growth of 5.9% for the next 12 months implies profitability will slow from its two-year trend
United Bankshares’s stock price of $46.14 implies a valuation ratio of 1.1x forward P/B. To fully understand why you should be careful with UBSI, check out our full research report (it’s free).
Oceaneering (OII)
Market Cap: $4.20 billion
Deploying a fleet of 250 tethered underwater robots around the globe, Oceaneering International (NYSE: OII) provides remotely operated underwater vehicles and subsea equipment for offshore energy exploration.
Why Do We Steer Clear of OII?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last ten years
- Gross margin of 17.4% is below its competitors, leaving less money to invest in exploration and production
- Low free cash flow margin of 4.7% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
Oceaneering is trading at $42.06 per share, or 9.5x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including OII in your portfolio.
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