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.
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 avoid and better alternatives to consider.
Domo (DOMO)
Market Cap: $150.4 million
Named for the Japanese word meaning "thank you very much," Domo (NASDAQ:DOMO) provides a cloud-based business intelligence platform that connects people with real-time data and insights across organizations.
Why Are We Out on DOMO?
- Products, pricing, or go-to-market strategy may need some adjustments as its 1.3% average billings growth over the last year was weak
- Sales are projected to tank by 1.7% over the next 12 months as demand evaporates further
- Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
Domo is trading at $3.33 per share, or 0.5x forward price-to-sales. Read our free research report to see why you should think twice about including DOMO in your portfolio.
Enterprise Financial Services (EFSC)
Market Cap: $2.51 billion
Starting as a single bank in Missouri in 1988 and expanding through strategic growth, Enterprise Financial Services (NASDAQ:EFSC) is a financial holding company that offers banking, lending, and wealth management services to businesses and individuals across seven states.
Why Are We Cautious About EFSC?
- Sales trends were unexciting over the last two years as its 7.7% annual growth was below the typical banking company
- Operational productivity has decreased over the last four years as its efficiency ratio worsened by 8.7 percentage points
- Performance over the past two years shows its incremental sales were less profitable, as its 5.2% annual earnings per share growth trailed its revenue gains
At $68.52 per share, Enterprise Financial Services trades at 1.2x forward P/B. If you’re considering EFSC for your portfolio, see our FREE research report to learn more.
Community Bank (CBU)
Market Cap: $3.73 billion
Tracing its roots back to 1866 in upstate New York, Community Financial System (NYSE:CBU) is a financial holding company that provides banking, employee benefits, wealth management, and insurance services to retail, commercial, and municipal customers.
Why Does CBU Give Us Pause?
- Net interest income trends were unexciting over the last five years as its 7% annual growth was below the typical banking firm
- Annual earnings per share growth of 4.1% underperformed its revenue over the last five years, showing its incremental sales were less profitable
- Tangible book value per share stagnated over the last five years, limiting its ability to leverage its balance sheet to make additional investments
Community Bank’s stock price of $70.99 implies a valuation ratio of 1.7x forward P/B. Dive into our free research report to see why there are better opportunities than CBU.
Stocks We Like More
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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 Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.