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.

Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. Keeping that in mind, here are three Russell 2000 stocks that don’t make the cut and some better choices instead.

Myriad Genetics (MYGN)

Market Cap: $631.8 million

Founded in 1991 as one of the pioneers in translating genetic discoveries into clinical applications, Myriad Genetics (NASDAQ: MYGN) develops genetic tests that assess disease risk, guide treatment decisions, and provide insights across oncology, women's health, and mental health.

Why Do We Pass on MYGN?

1. Muted 5.5% annual revenue growth over the last five years shows its demand lagged behind its healthcare peers
2. Push for growth has led to negative returns on capital, signaling value destruction, and its shrinking returns suggest its past profit sources are losing steam
3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

Myriad Genetics’s stock price of $6.73 implies a valuation ratio of 77.8x forward P/E. Check out our free in-depth research report to learn more about why MYGN doesn’t pass our bar.

Donnelley Financial Solutions (DFIN)

Market Cap: $1.55 billion

Born from the need to navigate increasingly complex financial regulations in the digital age, Donnelley Financial Solutions (NYSE: DFIN) provides software and technology-enabled services that help companies comply with SEC regulations and manage financial transactions and reporting requirements.

Why Are We Hesitant About DFIN?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 2.5% annually over the last five years
2. Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 4.3% annually

Donnelley Financial Solutions is trading at $56.37 per share, or 2x forward price-to-sales. If you’re considering DFIN for your portfolio, see our FREE research report to learn more.

Ladder Capital (LADR)

Market Cap: $1.50 billion

Founded during the 2008 financial crisis when traditional lenders retreated from commercial real estate, Ladder Capital (NYSE: LADR) is a real estate investment trust that originates commercial real estate loans, owns commercial properties, and invests in real estate securities.

Why Do We Steer Clear of LADR?

1. Annual sales declines of 13.2% for the past two years show its products and services struggled to connect with the market during this cycle
2. Incremental sales over the last five years were much less profitable as its earnings per share fell by 2.9% annually while its revenue grew
3. Flat tangible book value per share over the last five years suggest it must find different ways to enhance shareholder value during this cycle

At $11.76 per share, Ladder Capital trades at 1x forward P/B. To fully understand why you should be careful with LADR, check out our full research report (it’s free).

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