Small-cap stocks in the Russell 2000 (^RUT) can be a goldmine for investors looking beyond the usual large-cap names. But with less stability and fewer resources than their bigger counterparts, these companies face steeper challenges in scaling their businesses.

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.

Tri Pointe Homes (TPH)

Market Cap: $2.97 billion

Established in 2009 in California, Tri Pointe Homes (NYSE: TPH) is a United States homebuilder recognized for its innovative and sustainable approach to creating premium, life-enhancing homes.

Why Are We Out on TPH?

1. Backlog has dropped by 7.6% on average over the past two years, suggesting it’s losing orders as competition picks up
2. Projected sales decline of 18.5% over the next 12 months indicates demand will continue deteriorating
3. Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable

At $33.99 per share, Tri Pointe Homes trades at 12.1x forward P/E. Check out our free in-depth research report to learn more about why TPH doesn’t pass our bar.

Insperity (NSP)

Market Cap: $1.85 billion

Pioneering the professional employer organization (PEO) industry it helped establish, Insperity (NYSE: NSP) provides human resources outsourcing services to small and medium-sized businesses, handling payroll, benefits, compliance, and HR administration.

Why Do We Think Twice About NSP?

1. Annual revenue growth of 3.2% over the last two years was below our standards for the business services sector
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 13% annually
3. Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders

Insperity’s stock price of $49.01 implies a valuation ratio of 15.3x forward P/E. Dive into our free research report to see why there are better opportunities than NSP.

Valley National Bank (VLY)

Market Cap: $5.93 billion

Tracing its roots back to 1927 during the economic boom before the Great Depression, Valley National Bancorp (NASDAQGS:VLY) operates Valley National Bank, providing commercial, consumer, and wealth management banking services across several states.

Why Are We Wary of VLY?

1. Sales tumbled by 2.1% annually over the last two years, showing market trends are working against its favor during this cycle
2. Sales were less profitable over the last two years as its earnings per share fell by 25% annually, worse than its revenue declines
3. High debt servicing costs relative to its earnings leave little margin for error in meeting its financial obligations

Valley National Bank is trading at $10.59 per share, or 0.8x forward P/B. If you’re considering VLY for your portfolio, see our FREE research report to learn more.

Stocks We Like More

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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-small-cap company Comfort Systems (+782% 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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