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 be the next big thing and two that may struggle to keep up.
Two Stocks to Sell:
Wiley (WLY)
Market Cap: $2.11 billion
With roots dating back to 1807 when Charles Wiley opened a small printing shop in Manhattan, John Wiley & Sons (NYSE:WLY) is a global academic publisher that provides scientific journals, books, digital courseware, and knowledge solutions for researchers, students, and professionals.
Why Do We Pass on WLY?
- Sales tumbled by 1.7% annually over the last five 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 6.1 percentage points
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
At $39.41 per share, Wiley trades at 1.3x trailing 12-month price-to-sales. To fully understand why you should be careful with WLY, check out our full research report (it’s free).
Ready Capital (RC)
Market Cap: $634.3 million
Operating as one of only 17 non-bank Small Business Lending Companies with preferred lender status from the SBA, Ready Capital (NYSE:RC) is a multi-strategy real estate finance company that originates, acquires, and services commercial real estate loans, small business loans, and other real estate investments.
Why Do We Think RC Will Underperform?
- Annual revenue growth of 1.3% over the last two years was below our standards for the banking sector
- Earnings per share fell by 18.6% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Products and services are facing significant credit quality challenges during this cycle as tangible book value per share has declined by 5.7% annually over the last five years
Ready Capital’s stock price of $3.86 implies a valuation ratio of 0.4x forward P/B. Read our free research report to see why you should think twice about including RC in your portfolio.
One Stock to Buy:
Nicolet Bankshares (NIC)
Market Cap: $1.95 billion
Starting as Green Bay Financial Corporation in 2000 before rebranding in 2002, Nicolet Bankshares (NYSE:NIC) is a regional bank holding company that provides commercial, agricultural, and consumer banking services primarily in Wisconsin, Michigan, and Minnesota.
Why Should You Buy NIC?
- Impressive 18.4% annual net interest income growth over the last five years indicates it’s winning market share this cycle
- Net interest margin expanded by 40.3 basis points (100 basis points = 1 percentage point) over the last two years, providing additional flexibility for investments
- Earnings per share grew by 14.9% annually over the last two years and trumped its peers
Nicolet Bankshares is trading at $131.44 per share, or 1.6x forward P/B. Is now the right time to buy? See for yourself in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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