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.
The high-risk, high-reward nature of the Russell 2000 makes stock selection critical, and we’re here to guide you toward the right ones. Keeping that in mind, here are three Russell 2000 stocks to steer clear of and some alternatives to watch instead.
Semrush (SEMR)
Market Cap: $1.80 billion
Born from the need to make sense of the complex digital marketing landscape, Semrush (NYSE: SEMR) is a software-as-a-service platform that helps companies improve their online visibility, analyze digital marketing efforts, and optimize content across search engines and social media.
Why Does SEMR Give Us Pause?
- Customers generally do not adopt complementary products as its 106% net revenue retention rate lags behind the industry standard
- Operating margin declined by 4.3 percentage points over the last year as it scaled
- Poor free cash flow margin of 9.7% for the last year limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
Semrush’s stock price of $11.92 implies a valuation ratio of 3.6x forward price-to-sales. Check out our free in-depth research report to learn more about why SEMR doesn’t pass our bar.
Sweetgreen (SG)
Market Cap: $862.9 million
Founded in 2007 by three Georgetown University alum, Sweetgreen (NYSE: SG) is a casual quick service chain known for its healthy salads and bowls.
Why Are We Out on SG?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new diners into its restaurants
- Free cash flow margin dropped by 10.8 percentage points over the last year, implying the company became more capital intensive as competition picked up
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Sweetgreen is trading at $7.31 per share, or 1.2x forward price-to-sales. If you’re considering SG for your portfolio, see our FREE research report to learn more.
REV Group (REVG)
Market Cap: $3.18 billion
Offering the first full-electric North American fire truck, REV (NYSE: REVG) manufactures and sells specialty vehicles.
Why Do We Think Twice About REVG?
- Sales pipeline suggests its future revenue growth may not meet our standards as its average backlog growth of 3.7% for the past two years was weak
- Gross margin of 12.5% reflects its high production costs
- Responsiveness to unforeseen market trends is restricted due to its substandard operating margin profitability
At $65.08 per share, REV Group trades at 17.7x forward P/E. To fully understand why you should be careful with REVG, check out our full research report (it’s free for active Edge members).
Stocks We Like More
If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.
Don’t wait for the next volatility shock. Check out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
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 Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.
