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 to steer clear of and some alternatives to watch instead.
Nextdoor (NXDR)
Market Cap: $643.1 million
Helping residents figure out what's happening on their block in real time, Nextdoor (NYSE: KIND) is a social network that connects neighbors with each other and with local businesses.
Why Does NXDR Worry Us?
- Modest 6.5% annual growth in weekly active users over the last two years indicates potential challenges in customer acquisition and retention
- Poor expense management has led to EBITDA margin losses
- Cash-burning history makes us doubt the long-term viability of its business model
Nextdoor is trading at $1.63 per share, or 2.9x forward price-to-gross profit. Dive into our free research report to see why there are better opportunities than NXDR.
Fluence Energy (FLNC)
Market Cap: $2.26 billion
Pioneering the use of lithium-ion batteries for grid storage, Fluence (NASDAQ: FLNC) helps store renewable energy sources with battery systems.
Why Are We Hesitant About FLNC?
- Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 7.2%
- Free cash flow margin shrank by 6.4 percentage points over the last five years, suggesting the company stepped up its investments to maintain its competitive edge
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Fluence Energy’s stock price of $17.17 implies a valuation ratio of 64.2x forward EV-to-EBITDA. If you’re considering FLNC for your portfolio, see our FREE research report to learn more.
Surgery Partners (SGRY)
Market Cap: $1.93 billion
With more than 180 locations across 33 states serving as alternatives to traditional hospital settings, Surgery Partners (NASDAQ: SGRY) operates a national network of outpatient surgical facilities including ambulatory surgery centers and short-stay surgical hospitals.
Why Do We Think Twice About SGRY?
- Disappointing unit sales over the past two years indicate demand is soft and that the company may need to revise its strategy
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 4.6% for the last five years
- 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
At $15.42 per share, Surgery Partners trades at 23.1x forward P/E. To fully understand why you should be careful with SGRY, check out our full research report (it’s free for active Edge members).
High-Quality Stocks for All Market Conditions
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
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 for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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