The Russell 2000 (^RUT) is packed with potential breakout stocks, thanks to its focus on smaller companies with high growth potential. However, smaller size also means these businesses often lack the resilience and financial flexibility of large-cap firms, making careful selection crucial.

Picking the right small caps isn’t easy, and that’s exactly why StockStory exists - to help you focus on the best opportunities. Keeping that in mind, here are three Russell 2000 stocks to steer clear of and some alternatives to watch instead.

Cracker Barrel (CBRL)

Market Cap: $667.7 million

Known for its country-themed food and merchandise, Cracker Barrel (NASDAQ: CBRL) is a beloved American restaurant and retail chain that celebrates the warmth and charm of Southern hospitality.

Why Do We Pass on CBRL?

1. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
2. Projected sales decline of 2.5% for the next 12 months points to a tough demand environment ahead
3. Responsiveness to unforeseen market trends is restricted due to its substandard operating margin profitability

Cracker Barrel is trading at $30 per share, or 30.4x forward P/E. Dive into our free research report to see why there are better opportunities than CBRL.

Marriott Vacations (VAC)

Market Cap: $1.63 billion

Spun off from Marriott International in 1984, Marriott Vacations (NYSE: VAC) is a vacation company providing leisure experiences for travelers around the world.

Why Do We Steer Clear of VAC?

1. Demand for its offerings was relatively low as its number of conducted tours has underwhelmed
2. Low returns on capital reflect management’s struggle to allocate funds effectively, and its shrinking returns suggest its past profit sources are losing steam
3. High net-debt-to-EBITDA ratio of 7× increases the risk of forced asset sales or dilutive financing if operational performance weakens

At $47.25 per share, Marriott Vacations trades at 6.3x forward P/E. Check out our free in-depth research report to learn more about why VAC doesn’t pass our bar.

Lemonade (LMND)

Market Cap: $5.75 billion

Built on the principle of giving back unused premiums to charitable causes selected by policyholders, Lemonade (NYSE: LMND) is a technology-driven insurance company that offers homeowners, renters, pet, car, and life insurance through an AI-powered digital platform.

Why Does LMND Give Us Pause?

1. Performance over the past two years shows its incremental sales were less profitable, as its 17.4% annual earnings per share growth trailed its revenue gains
2. Products and services are facing significant credit quality challenges during this cycle as book value per share has declined by 7.2% annually over the last five years
3. Push for growth has led to negative returns on capital, signaling value destruction

Lemonade’s stock price of $76.74 implies a valuation ratio of 11.7x forward P/B. Read our free research report to see why you should think twice about including LMND in your portfolio.

Stocks We Like More

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 Growth Stocks for this month. 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 (+1,545% 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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