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.

Designer Brands (DBI)

Market Cap: $292.4 million

Founded in 1969 as a shoe importer and distributor, Designer Brands (NYSE: DBI) is an American discount retailer focused on footwear and accessories.

Why Should You Dump DBI?

1. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
2. Falling earnings per share over the last three years has some investors worried as stock prices ultimately follow EPS over the long term
3. 11× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

Designer Brands is trading at $5.76 per share, or 18.4x forward P/E. Check out our free in-depth research report to learn more about why DBI doesn’t pass our bar.

Terex (TEX)

Market Cap: $7.26 billion

With humble beginnings as a dump truck company, Terex (NYSE: TEX) today manufactures lifting and material handling equipment designed to move and hoist heavy goods and materials.

Why Does TEX Give Us Pause?

1. Muted 2.6% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
2. Earnings per share have dipped by 33.7% annually over the past two years, which is concerning because stock prices follow EPS over the long term
3. Eroding returns on capital suggest its historical profit centers are aging

At $63.40 per share, Terex trades at 12.7x forward P/E. To fully understand why you should be careful with TEX, check out our full research report (it’s free).

First Bancorp (FBNC)

Market Cap: $2.30 billion

Founded during the Great Depression in 1934 and originally known as Montgomery Bancorp, First Bancorp (NASDAQ: FBNC) is a community-oriented commercial bank providing a wide range of financial services to businesses and individuals in North and South Carolina.

Why Is FBNC Not Exciting?

1. Muted 2% annual revenue growth over the last two years shows its demand lagged behind its banking peers
2. Net interest margin of 3.1% is well below other banks, signaling its loans aren’t very profitable
3. Earnings per share were flat over the last two years while its revenue grew, showing its incremental sales were less profitable

First Bancorp’s stock price of $55.50 implies a valuation ratio of 1.4x forward P/B. Dive into our free research report to see why there are better opportunities than FBNC.

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