The Russell 2000 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.
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 that don’t make the cut and some better choices instead.
FormFactor (FORM)
Market Cap: $2.09 billion
With customers across the foundry and fabless markets, FormFactor (NASDAQ:FORM) is a US-based provider of test and measurement technologies for semiconductors.
Why Do We Pass on FORM?
- Muted 5.3% annual revenue growth over the last five years shows its demand lagged behind its semiconductor peers
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 2.1%
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 5.6 percentage points
At $26.55 per share, FormFactor trades at 16.2x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than FORM.
Dine Brands (DIN)
Market Cap: $300.8 million
Operating a franchise model, Dine Brands (NYSE:DIN) is a casual restaurant chain that owns the Applebee’s and IHOP banners.
Why Do We Think Twice About DIN?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new restaurants
- Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 5.1% annually, worse than its revenue
- 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Dine Brands’s stock price of $19.99 implies a valuation ratio of 3.4x forward price-to-earnings. Check out our free in-depth research report to learn more about why DIN doesn’t pass our bar.
Pitney Bowes (PBI)
Market Cap: $1.50 billion
With a century-long history dating back to 1920 and processing over 15 billion pieces of mail annually, Pitney Bowes (NYSE:PBI) provides shipping, mailing technology, logistics, and financial services to businesses of all sizes.
Why Should You Dump PBI?
- Annual sales declines of 8.9% for the past five years show its products and services struggled to connect with the market during this cycle
- Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
If you’re considering PBI for your portfolio, see our FREE research report to learn more.
Stocks We Like More
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Axon (+711% five-year return). Find your next big winner with StockStory today for free.