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.
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.
Herbalife (HLF)
Market Cap: $990.8 million
With the first products sold out of the trunk of the founder’s car, Herbalife (NYSE:HLF) today offers a portfolio of shakes, supplements, personal care products, and weight management programs to help customers reach their nutritional and fitness goals.
Why Does HLF Give Us Pause?
- Shrinking unit sales over the past two years suggest it might have to lower prices to stimulate growth
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 3.6%
- Performance over the past three years was negatively impacted by new share issuances as its earnings per share dropped by 17.3% annually, worse than its revenue
At $9.61 per share, Herbalife trades at 4.5x forward P/E. To fully understand why you should be careful with HLF, check out our full research report (it’s free).
Covenant Logistics (CVLG)
Market Cap: $596.2 million
Started with 25 trucks and 50 trailers, Covenant Logistics (NASDAQ:CVLG) is a provider of expedited long haul freight services, offering a range of logistics solutions.
Why Do We Think CVLG Will Underperform?
- Sales were flat over the last two years, indicating it’s failed to expand this cycle
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 20.4 percentage points
- Waning returns on capital imply its previous profit engines are losing steam
Covenant Logistics is trading at $23.83 per share, or 11.6x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than CVLG.
Walker & Dunlop (WD)
Market Cap: $2.84 billion
Originating as a small mortgage banking firm during the Great Depression in 1937, Walker & Dunlop (NYSE:WD) provides commercial real estate financing, property sales, appraisal, and investment management services with a focus on multifamily properties.
Why Do We Think Twice About WD?
- Annual net interest income declines of 56.7% for the past five years show its loan book struggled during this cycle
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 6% annually
- Loan losses and capital returns have eroded its tangible book value per share this cycle as its tangible book value per share declined by 4.5% annually over the last five years
Walker & Dunlop’s stock price of $83.36 implies a valuation ratio of 1.6x forward P/B. Check out our free in-depth research report to learn more about why WD doesn’t pass our bar.
Stocks We Like More
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check 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 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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