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.
Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. That said, here are three Russell 2000 stocks to avoid and better alternatives to consider.
Bandwidth (BAND)
Market Cap: $1.44 billion
Powering communications for tech giants like Microsoft, Google, and Zoom, Bandwidth (NASDAQ: BAND) provides cloud-based communications software and APIs that enable businesses to embed voice, messaging, and emergency services into their applications and platforms.
Why Should You Dump BAND?
- Annual revenue growth of 11.5% over the last two years was below our standards for the software sector
- Bad unit economics and steep infrastructure costs are reflected in its gross margin of 38.2%, one of the worst among software companies
- Operating margin didn’t move over the last year, showing it couldn’t increase its efficiency
Bandwidth is trading at $45.51 per share, or 1.6x forward price-to-sales. To fully understand why you should be careful with BAND, check out our full research report (it’s free).
Tenable (TENB)
Market Cap: $2.39 billion
Starting with the widely-used Nessus vulnerability scanner first released in 1998, Tenable (NASDAQ: TENB) provides exposure management solutions that help organizations identify, assess, and prioritize cybersecurity vulnerabilities across their IT infrastructure and cloud environments.
Why Are We Cautious About TENB?
- Average billings growth of 6.9% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Estimated sales growth of 6.8% for the next 12 months implies demand will slow from its two-year trend
- Operating profits and efficiency rose over the last year as it benefited from some fixed cost leverage
At $20.65 per share, Tenable trades at 2.3x forward price-to-sales. Check out our free in-depth research report to learn more about why TENB doesn’t pass our bar.
Trustmark (TRMK)
Market Cap: $2.61 billion
Tracing its roots back to 1889 in Mississippi, Trustmark (NASDAQ: TRMK) is a financial services organization providing banking, wealth management, insurance, and mortgage services across five southeastern states.
Why Are We Wary of TRMK?
- Net interest income trends were unexciting over the last five years as its 9.1% annual growth was below the typical banking firm
- Estimated net interest income growth of 4.3% for the next 12 months implies demand will slow from its five-year trend
- Earnings per share lagged its peers over the last five years as they only grew by 4.7% annually
Trustmark’s stock price of $44.34 implies a valuation ratio of 1.2x forward P/B. Dive into our free research report to see why there are better opportunities than TRMK.
Stocks We Like More
ONE MORE THING: Top 6 Stocks for This Week. This market is separating quality stocks from expensive ones fast. AI taking down whole sectors with no warning. In a rotation this fast, you need more than a list of good companies.
Our AI system flagged Palantir before it ran 1,662%. AppLovin before it ran 753%. Nvidia before it ran 1,178%. Each week it produces 6 new names that pass the same tests. Get Our Top 6 Stocks for Free HERE.
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-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
