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.
Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. Keeping that in mind, here are three Russell 2000 stocks to avoid and better alternatives to consider.
Flywire (FLYW)
Market Cap: $1.51 billion
Initially created to solve the challenges of international student tuition payments, Flywire (NASDAQ: FLYW) provides specialized payment processing and software solutions that help educational institutions, healthcare systems, travel companies, and businesses manage complex payments.
Why Does FLYW Give Us Pause?
- Gross margin of 60.1% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
- Operating profits and efficiency rose over the last year as it benefited from some fixed cost leverage
Flywire is trading at $12.75 per share, or 2.2x forward price-to-sales. To fully understand why you should be careful with FLYW, check out our full research report (it’s free).
FormFactor (FORM)
Market Cap: $7.01 billion
With customers across the foundry and fabless markets, FormFactor (NASDAQ: FORM) is a US-based provider of test and measurement technologies for semiconductors.
Why Does FORM Fall Short?
- Annual revenue growth of 2.5% over the last five years was below our standards for the semiconductor sector
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 2.8% annually while its revenue grew
- Weak free cash flow margin of 5.9% has deteriorated further over the last five years as its investments increased
At $88.56 per share, FormFactor trades at 47.7x forward P/E. Read our free research report to see why you should think twice about including FORM in your portfolio.
Leggett & Platt (LEG)
Market Cap: $1.38 billion
Founded in 1883, Leggett & Platt (NYSE: LEG) is a diversified manufacturer of products and components for various industries.
Why Do We Think LEG Will Underperform?
- Sales tumbled by 1.1% annually over the last five years, showing consumer trends are working against its favor
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 6% for the last two years
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Leggett & Platt’s stock price of $10.23 implies a valuation ratio of 9.4x forward P/E. If you’re considering LEG for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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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 Kadant (+351% five-year return). Find your next big winner with StockStory today.
