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.
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.
Marcus & Millichap (MMI)
Market Cap: $1.13 billion
Founded in 1971, Marcus & Millichap (NYSE: MMI) specializes in commercial real estate investment sales, financing, research, and advisory services.
Why Do We Avoid MMI?
- 1.9% annual revenue growth over the last five years was slower than its consumer discretionary peers
- Poor free cash flow margin of 6.4% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Marcus & Millichap’s stock price of $29.93 implies a valuation ratio of 60.4x forward P/E. If you’re considering MMI for your portfolio, see our FREE research report to learn more.
Global Industrial (GIC)
Market Cap: $1.17 billion
Formerly known as Systemax, Global Industrial (NYSE: GIC) distributes industrial and commercial products to businesses and institutions.
Why Is GIC Risky?
- Sales trends were unexciting over the last two years as its 3.1% annual growth was below the typical industrials company
- Earnings per share lagged its peers over the last two years as they only grew by 1.6% annually
- Waning returns on capital imply its previous profit engines are losing steam
Global Industrial is trading at $30.56 per share, or 15.6x forward P/E. Read our free research report to see why you should think twice about including GIC in your portfolio.
Methode Electronics (MEI)
Market Cap: $450.7 million
Founded in 1946, Methode Electronics (NYSE: MEI) is a global supplier of custom-engineered solutions for Original Equipment Manufacturers (OEMs).
Why Should You Sell MEI?
- Flat sales over the last five years suggest it must find different ways to grow during this cycle
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
- 7× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
At $12.74 per share, Methode Electronics trades at 10x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why MEI doesn’t pass our bar.
Stocks We Like More
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don’t just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
But our AI platform says the party isn’t over. Find out which 9 stocks made the cut this week — FREE. Get Our Top 9 Market-Beating Stocks for Free HERE.
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.
