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.
Picking the right small caps isn’t easy, and that’s exactly why StockStory exists - to help you focus on the best opportunities. That said, here are three Russell 2000 stocks to steer clear of and some alternatives to watch instead.
Peloton (PTON)
Market Cap: $2.25 billion
Started as a Kickstarter campaign, Peloton (NASDAQ: PTON) is a fitness technology company known for its at-home exercise equipment and interactive online workout classes.
Why Is PTON Risky?
- Demand for its offerings was relatively low as its number of connected fitness subscribers has underwhelmed
- Poor expense management has led to an operating margin of 2.5% that is below the industry average
- Free cash flow margin is not anticipated to grow over the next year
At $5.08 per share, Peloton trades at 14.8x forward P/E. Dive into our free research report to see why there are better opportunities than PTON.
Simply Good Foods (SMPL)
Market Cap: $900.5 million
Best known for its Atkins brand that was inspired by the popular diet of the same name, Simply Good Foods (NASDAQ: SMPL) is a packaged food company whose offerings help customers achieve their healthy eating or weight loss goals.
Why Do We Pass on SMPL?
- Muted 5.2% annual revenue growth over the last three years shows its demand lagged behind its consumer staples peers
- Sales are projected to tank by 8.9% over the next 12 months as demand evaporates
- Efficiency has decreased over the last year as its operating margin fell by 31.9 percentage points
Simply Good Foods is trading at $10.22 per share, or 6.1x forward P/E. To fully understand why you should be careful with SMPL, check out our full research report (it’s free).
Griffon (GFF)
Market Cap: $4.10 billion
Initially in the defense industry, Griffon (NYSE: GFF) is a now diversified company specializing in home improvement, professional equipment, and building products.
Why Is GFF Not Exciting?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 4.4% annually over the last five years
- Projected sales decline of 6.9% over the next 12 months indicates demand will continue deteriorating
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 7% annually
Griffon’s stock price of $90.59 implies a valuation ratio of 15.6x forward P/E. If you’re considering GFF 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 (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.
