The Russell 2000 (^RUT) is packed with potential breakout stocks, thanks to its focus on smaller companies with high growth potential. However, smaller size also means these businesses often lack the resilience and financial flexibility of large-cap firms, making careful selection crucial.
Picking the right small caps isn’t easy, and that’s exactly why StockStory exists - to help you focus on the best opportunities. Keeping that in mind, here are three Russell 2000 stocks to avoid and better alternatives to consider.
Zumiez (ZUMZ)
Market Cap: $359.2 million
With store associates called “Zumiez Stash Members”, Zumiez (NASDAQ: ZUMZ) is a specialty retailer of street and skate apparel, footwear, and accessories.
Why Do We Avoid ZUMZ?
- Recent store closures reflect a shift toward streamlining existing locations to maximize efficiency
- Subscale operations are evident in its revenue base of $929.1 million, meaning it has fewer distribution channels than its larger rivals
- Underwhelming 3.1% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its shrinking returns suggest its past profit sources are losing steam
Zumiez is trading at $21.17 per share, or 23x forward P/E. Read our free research report to see why you should think twice about including ZUMZ in your portfolio.
Herc (HRI)
Market Cap: $3.52 billion
Formerly a subsidiary of Hertz Corporation and with a logo that still bears some similarities to its former parent, Herc Holdings (NYSE: HRI) provides equipment rental and related services to a wide range of industries.
Why Are We Wary of HRI?
- Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 7.3 percentage points
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 22.1% annually while its revenue grew
- 5× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Herc’s stock price of $102.71 implies a valuation ratio of 15.3x forward P/E. If you’re considering HRI for your portfolio, see our FREE research report to learn more.
BankUnited (BKU)
Market Cap: $3.14 billion
Born from the ashes of a failed Florida thrift during the 2009 financial crisis, BankUnited (NYSE: BKU) is a regional bank that provides commercial lending, deposit services, and treasury solutions to businesses and consumers primarily in Florida and the New York metropolitan area.
Why Are We Hesitant About BKU?
- Annual net interest income growth of 5.6% over the last five years was below our standards for the banking sector
- Anticipated 15.4 percentage point rise in its efficiency ratio suggests its expenses will increase as a percentage of revenue
- Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 4.9% annually
At $42.68 per share, BankUnited trades at 1x forward P/B. Dive into our free research report to see why there are better opportunities than BKU.
High-Quality Stocks for All Market Conditions
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don't just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
But our AI platform says the party isn't over. Find out which 9 stocks made the cut this week — FREE. Get Our Top 9 Market-Beating Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.
