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.

Udemy (UDMY)

Market Cap: $690.8 million

With courses ranging from investing to cooking to computer programming, Udemy (NASDAQ: UDMY) is an online learning platform that connects learners with expert instructors who specialize in a wide range of topics.

Why Is UDMY Not Exciting?

1. Struggled with new customer acquisition as its monthly active buyers averaged 56.2% declines
2. Estimated sales growth of 2% for the next 12 months implies demand will slow from its three-year trend
3. Expensive marketing campaigns hurt its profitability and make us wonder what would happen if it let up on the gas

Udemy is trading at $4.76 per share, or 3.3x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than UDMY.

MGP Ingredients (MGPI)

Market Cap: $364 million

Headquartered in Atchison, Kansas, MGP Ingredients (NASDAQ: MGPI) is a leading supplier of high-quality ingredients to the food and beverage industry

Why Do We Avoid MGPI?

1. Sales tumbled by 11.8% annually over the last three years, showing consumer trends are working against its favor
2. Inability to adjust its cost structure while its revenue declined over the last year led to a 28.2 percentage point drop in the company’s operating margin
3. Earnings per share have contracted by 17% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance

At $17.46 per share, MGP Ingredients trades at 10.5x forward P/E. If you’re considering MGPI for your portfolio, see our FREE research report to learn more.

E.W. Scripps (SSP)

Market Cap: $291.1 million

Founded as a chain of daily newspapers, E.W. Scripps (NASDAQ: SSP) is a diversified media enterprise operating a range of local television stations, national networks, and digital media platforms.

Why Do We Think SSP Will Underperform?

1. Muted 3% annual revenue growth over the last five years shows its demand lagged behind its consumer discretionary peers
2. Unchanged returns on capital make it difficult for the company’s valuation multiple to re-rate
3. High net-debt-to-EBITDA ratio of 8× increases the risk of forced asset sales or dilutive financing if operational performance weakens

E.W. Scripps’s stock price of $3.31 implies a valuation ratio of 5.8x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including SSP in your portfolio.

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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.