Small-cap stocks in the Russell 2000 (^RUT) can be a goldmine for investors looking beyond the usual large-cap names. But with less stability and fewer resources than their bigger counterparts, these companies face steeper challenges in scaling their businesses.
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 avoid and better alternatives to consider.
nLIGHT (LASR)
Market Cap: $2.27 billion
Founded by a former CEO and Harvard-educated entrepreneur Scott Keeneyn, nLIGHT (NASDAQ:LASR) offers semiconductor and fiber lasers to the industrial, aerospace & defense, and medical sectors.
Why Do We Think Twice About LASR?
- Annual revenue growth of 3.8% over the last five years was below our standards for the industrials sector
- Historical operating margin losses point to an inefficient cost structure
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
nLIGHT is trading at $39.45 per share, or 105x forward P/E. If you’re considering LASR for your portfolio, see our FREE research report to learn more.
Valley National Bank (VLY)
Market Cap: $7.63 billion
Tracing its roots back to 1927 during the economic boom before the Great Depression, Valley National Bancorp (NASDAQGS:VLY) operates Valley National Bank, providing commercial, consumer, and wealth management banking services across several states.
Why Are We Hesitant About VLY?
- Muted 9.9% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Weak unit economics are reflected in its net interest margin of 3.1%, one of the worst among bank companies
- Performance over the past five years shows its incremental sales were less profitable, as its 1.4% annual earnings per share growth trailed its revenue gains
At $13.81 per share, Valley National Bank trades at 0.9x forward P/B. Read our free research report to see why you should think twice about including VLY in your portfolio.
Core Laboratories (CLB)
Market Cap: $573.1 million
With roots dating back to the first commercial oil boom, Core Laboratories (NYSE:CLB) analyzes rock and fluid samples from oil and gas reservoirs to help energy companies optimize production and recovery.
Why Do We Think CLB Will Underperform?
- Sales trends were unexciting over the last five years as its 3.1% annual growth was below the typical energy upstream and integrated energy company
- Revenue base of $519.2 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Gross margin of 20.3% reflects its high production costs and unfavorable asset base
Core Laboratories’s stock price of $12.51 implies a valuation ratio of 19.7x forward P/E. Dive into our free research report to see why there are better opportunities than CLB.
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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 Kadant (+214% between June 2020 and June 2025). Find your next big winner with StockStory today.