3 Russell 2000 Stocks We Approach with Caution

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 to avoid and better alternatives to consider.

ON24 (ONTF)

Market Cap: $230 million

Powering over 1,700 companies' virtual marketing efforts since 1998, ON24 (NYSE:ONTF) provides a cloud-based platform that enables businesses to create interactive digital experiences and capture actionable data from customer engagement.

Why Should You Sell ONTF?

1. Billings have dropped by 8.1% over the last year, suggesting it might have to lower prices to stimulate growth
2. Projected sales decline of 5.1% over the next 12 months indicates demand will continue deteriorating
3. Historical operating margin losses point to an inefficient cost structure

ON24 is trading at $5.45 per share, or 1.7x forward price-to-sales. Check out our free in-depth research report to learn more about why ONTF doesn’t pass our bar.

Applied Digital (APLD)

Market Cap: $6.02 billion

Pivoting from its origins in cryptocurrency mining to become a key player in the AI infrastructure boom, Applied Digital (NASDAQ:APLD) designs and operates specialized data centers that provide high-performance computing infrastructure for artificial intelligence and blockchain applications.

Why Does APLD Worry Us?

1. Incremental sales over the last two years were much less profitable as its earnings per share fell by 83.8% annually while its revenue grew
2. 54.3 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

Applied Digital’s stock price of $21.28 implies a valuation ratio of 53.4x forward EV-to-EBITDA. To fully understand why you should be careful with APLD, check out our full research report (it’s free for active Edge members).

Kforce (KFRC)

Market Cap: $514.6 million

With nearly 60 years of matching skilled professionals with the right opportunities, Kforce (NYSE:KFRC) is a professional staffing company that specializes in placing technology and finance experts with businesses on both temporary and permanent bases.

Why Should You Dump KFRC?

1. Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
2. Earnings per share have contracted by 1.4% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
3. Diminishing returns on capital suggest its earlier profit pools are drying up

At $30.54 per share, Kforce trades at 13x forward P/E. If you’re considering KFRC for your portfolio, see our FREE research report to learn more.

Stocks We Like More

If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.

Don’t wait for the next volatility shock. 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 244% over the last five years (as of June 30, 2025).

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 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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