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.
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.
Impinj (PI)
Market Cap: $3.96 billion
Founded by Caltech professor Carver Mead and one of his students Chris Diorio, Impinj (NASDAQ: PI) is a maker of radio-frequency identification (RFID) hardware and software.
Why Are We Hesitant About PI?
- Projected sales growth of 9.3% for the next 12 months suggests sluggish demand
- Persistent operating margin losses suggest the business manages its expenses poorly
- Negative returns on capital show that some of its growth strategies have backfired
Impinj is trading at $133.91 per share, or 62.5x forward P/E. Read our free research report to see why you should think twice about including PI in your portfolio.
American Eagle (AEO)
Market Cap: $3.06 billion
With a heavy focus on denim, American Eagle Outfitters (NYSE: AEO) is a specialty retailer offering an assortment of apparel and accessories to young adults.
Why Are We Wary of AEO?
- Annual revenue growth of 3.8% over the last three years was below our standards for the consumer retail sector
- Limited expansion of stores suggests it’s prioritizing efficiency over growth at this stage
- Underwhelming 7.8% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its shrinking returns suggest its past profit sources are losing steam
American Eagle’s stock price of $17.11 implies a valuation ratio of 10x forward P/E. Dive into our free research report to see why there are better opportunities than AEO.
Coty (COTY)
Market Cap: $1.79 billion
With a portfolio boasting many household brands, Coty (NYSE: COTY) is a beauty products powerhouse spanning cosmetics, fragrances, and skincare.
Why Is COTY Risky?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Demand will likely fall over the next 12 months as Wall Street expects flat revenue
- Incremental sales over the last three years were much less profitable as its earnings per share fell by 29.3% annually while its revenue grew
At $1.96 per share, Coty trades at 5.7x forward P/E. Check out our free in-depth research report to learn more about why COTY doesn’t pass our bar.
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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-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
