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.
Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. That said, here are three Russell 2000 stocks to steer clear of and some alternatives to watch instead.
Tenable (TENB)
Market Cap: $3.80 billion
Starting with the widely-used Nessus vulnerability scanner first released in 1998, Tenable (NASDAQ: TENB) provides exposure management solutions that help organizations identify, assess, and prioritize cybersecurity vulnerabilities across their IT infrastructure and cloud environments.
Why Does TENB Worry Us?
- Products, pricing, or go-to-market strategy may need some adjustments as its 7.1% average billings growth over the last year was weak
- Estimated sales growth of 7% for the next 12 months implies demand will slow from its two-year trend
Tenable’s stock price of $34.89 implies a valuation ratio of 3.5x forward price-to-sales. Check out our free in-depth research report to learn more about why TENB doesn’t pass our bar.
Somnigroup (SGI)
Market Cap: $14.62 billion
Established through the merger of Tempur-Pedic and Sealy in 2012, Somnigroup (NYSE: SGI) is a bedding manufacturer known for its innovative memory foam mattresses and sleep products
Why Do We Think SGI Will Underperform?
- 11.6% annual revenue growth over the last five years was slower than its consumer discretionary peers
- Free cash flow margin is forecasted to shrink by 2.7 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $69.52 per share, Somnigroup trades at 20x forward P/E. If you’re considering SGI for your portfolio, see our FREE research report to learn more.
LifeStance Health Group (LFST)
Market Cap: $4.90 billion
With over 6,600 licensed mental health professionals treating more than 880,000 patients annually, LifeStance Health (NASDAQ: LFST) provides outpatient mental health services through a network of clinicians offering psychiatric evaluations, psychological testing, and therapy across 33 states.
Why Is LFST Not Exciting?
- Subscale operations are evident in its revenue base of $1.58 billion, meaning it has fewer distribution channels than its larger rivals
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Negative returns on capital show management lost money while trying to expand the business
LifeStance Health Group is trading at $13.04 per share, or 31.1x forward P/E. Read our free research report to see why you should think twice about including LFST in your portfolio.
High-Quality Stocks for All Market Conditions
ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.
Find out which 5 stocks it’s flagging this month — FREE. Get Our Top 5 Growth Stocks for Free HERE.
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.
