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 are three Russell 2000 stocks to avoid and better alternatives to consider.
Stitch Fix (SFIX)
Market cap: $372.8 million
One of the original subscription box companies, Stitch Fix (NASDAQ:SFIX) is an online personal styling and fashion service that curates personalized clothing selections for customers.
Why Are We Bearish on SFIX?
- Sluggish trends in its active clients suggest customers aren’t adopting its solutions as quickly as the company hoped
- Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 11.5% annually
- Free cash flow margin is expected to remain in place over the coming year
Stitch Fix is trading at $2.79 per share, or 7.2x forward EV-to-EBITDA. To fully understand why you should be careful with SFIX, check out our full research report (it’s free).
Preferred Bank (PFBC)
Market cap: $1.27 billion
Founded in 1991 with a focus on serving the Pacific Rim community in Southern California, Preferred Bank (NASDAQ:PFBC) is a commercial bank that provides banking products and services to small and mid-sized businesses, entrepreneurs, real estate developers, and high net worth individuals.
Why Are We Hesitant About PFBC?
- Net interest income trends were unexciting over the last five years as its 8.3% annual growth was below the typical banking firm
- Net interest margin shrank by 45.1 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 lagged its peers over the last two years as they only grew by 3.9% annually
At $107.23 per share, Preferred Bank trades at 1.5x forward P/B. If you’re considering PFBC for your portfolio, see our FREE research report to learn more.
ProPetro (PUMP)
Market cap: $858.8 million
Operating exclusively in the Permian Basin—one of America's most prolific oil-producing regions—ProPetro (NYSE:PUMP) provides hydraulic fracturing services that pump high-pressure fluid and sand into oil wells to release trapped hydrocarbons.
Why Do We Pass on PUMP?
- Annual revenue growth of 9.3% over the last five years was below our standards for the energy upstream and integrated energy sector
- Gross margin of 27.2% reflects its high production costs and unfavorable asset base
- Costs have risen faster than its revenue over the last five years, causing its EBITDA margin to decline by 7.2 percentage points
ProPetro’s stock price of $7.18 implies a valuation ratio of 40.3x forward P/E. Read our free research report to see why you should think twice about including PUMP in your portfolio.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+1,154% between June 2020 and June 2025). Find your next big winner with StockStory today.