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 that don’t make the cut and some better choices instead.
Kulicke and Soffa (KLIC)
Market Cap: $5.18 billion
Headquartered in Singapore, Kulicke & Soffa (NASDAQ: KLIC) is a provider of production equipment and tools used to assemble semiconductor devices
Why Are We Wary of KLIC?
- Sales tumbled by 3.9% annually over the last five years, showing market trends are working against it during this cycle
- Operating profits fell over the last five years as its sales dropped and it struggled to adjust its fixed costs
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 20.2 percentage points
Kulicke and Soffa is trading at $97.99 per share, or 26.3x forward P/E. To fully understand why you should be careful with KLIC, check out our full research report (it’s free).
Alarm.com (ALRM)
Market Cap: $2.68 billion
Processing over 325 billion data points annually from more than 150 million connected devices, Alarm.com (NASDAQ: ALRM) provides cloud-based platforms that enable residential and commercial property owners to remotely monitor and control their security, video, energy, and other connected devices.
Why Do We Pass on ALRM?
- Offerings struggled to generate meaningful interest as its average billings growth of 8.4% over the last year did not impress
- Estimated sales growth of 3.5% for the next 12 months implies demand will slow from its two-year trend
- Operating margin failed to increase over the last year, indicating the company couldn’t optimize its expenses
Alarm.com’s stock price of $53.48 implies a valuation ratio of 2.7x forward price-to-sales. Dive into our free research report to see why there are better opportunities than ALRM.
Krispy Kreme (DNUT)
Market Cap: $587.8 million
Famous for its Original Glazed doughnuts and parent company of Insomnia Cookies, Krispy Kreme (NASDAQ: DNUT) is one of the most beloved and well-known fast-food chains in the world.
Why Is DNUT Risky?
- Earnings per share have dipped by 23% annually over the past four years, which is concerning because stock prices follow EPS over the long term
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- 8× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
At $3.42 per share, Krispy Kreme trades at 323x forward P/E. If you’re considering DNUT for your portfolio, see our FREE research report to learn 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.
