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 avoid and better alternatives to consider.
Coursera (COUR)
Market Cap: $1.90 billion
Founded by two Stanford University computer science professors, Coursera (NYSE: COUR) is an online learning platform that offers courses, specializations, and degrees from top universities and organizations around the world.
Why Are We Cautious About COUR?
- Focus on expanding its platform came at the expense of monetization as its average revenue per customer fell by 6.4% annually
- Estimated sales growth of 5.6% for the next 12 months implies demand will slow from its three-year trend
- Highly competitive market means it’s on the never-ending treadmill of sales and marketing spend
Coursera is trading at $11.69 per share, or 36.5x forward EV/EBITDA. Check out our free in-depth research report to learn more about why COUR doesn’t pass our bar.
Sunrun (RUN)
Market Cap: $3.90 billion
Helping homeowners use solar energy to power their homes, Sunrun (NASDAQ: RUN) provides residential solar electricity, specializing in panel installation and leasing services.
Why Are We Wary of RUN?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 6.2% annually over the last two years
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Sunrun’s stock price of $16.96 implies a valuation ratio of 23.4x forward EV-to-EBITDA. To fully understand why you should be careful with RUN, check out our full research report (it’s free).
Ellington Financial (EFC)
Market Cap: $1.31 billion
Operating under the guidance of Ellington Management Group, a respected name in structured credit markets, Ellington Financial (NYSE: EFC) acquires and manages a diverse portfolio of mortgage-related, consumer-related, and other financial assets to generate returns for investors.
Why Is EFC Risky?
- 5% annual net interest income growth over the last five years was slower than its banking peers
- Incremental sales over the last five years were less profitable as its earnings per share were flat while its revenue grew
- Loan losses and capital returns have eroded its tangible book value per share this cycle as its tangible book value per share declined by 2.9% annually over the last five years
At $12.99 per share, Ellington Financial trades at 1x forward P/B. Dive into our free research report to see why there are better opportunities than EFC.
High-Quality Stocks for All Market Conditions
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out 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 183% over the last five years (as of March 31st 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 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
StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.
