3 Russell 2000 Stocks with Questionable Fundamentals

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 steer clear of and some alternatives to watch instead.

Custom Truck One Source (CTOS)

Market Cap: $1.45 billion

Inspired by a family gas station, Custom Truck One Source (NYSE:CTOS) is a distributor of trucks and heavy equipment.

Why Does CTOS Worry Us?

1. Sales trends were unexciting over the last two years as its 2.9% annual growth was below the typical industrials company
2. Earnings per share have dipped by 47.9% annually over the past two years, which is concerning because stock prices follow EPS over the long term
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 19.4 percentage points

At $6.39 per share, Custom Truck One Source trades at 3.5x forward EV-to-EBITDA. To fully understand why you should be careful with CTOS, check out our full research report (it’s free for active Edge members).

Orion (ORN)

Market Cap: $399 million

Established in 1994, Orion (NYSE:ORN) provides construction services for marine infrastructure and industrial projects.

Why Do We Think ORN Will Underperform?

1. Demand cratered as it couldn’t win new orders over the past two years, leading to an average 1.7% decline in its backlog
2. Earnings per share fell by 3.8% annually over the last five years while its revenue grew, partly because it diluted shareholders
3. Low free cash flow margin of -0.7% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders

Orion is trading at $10 per share, or 39.2x forward P/E. Dive into our free research report to see why there are better opportunities than ORN.

ScanSource (SCSC)

Market Cap: $902.3 million

Operating as a crucial link in the technology supply chain since 1992, ScanSource (NASDAQ:SCSC) is a hybrid distributor that connects hardware, software, and cloud services from technology suppliers to resellers and business customers.

Why Should You Sell SCSC?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 11.1% annually over the last two years
2. Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 3.8% annually
3. Poor free cash flow margin of 2.6% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends

ScanSource’s stock price of $41.12 implies a valuation ratio of 9.6x forward P/E. Read our free research report to see why you should think twice about including SCSC in your portfolio.

Stocks We Like More

The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 9 Market-Beating Stocks. 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-micro-cap company Tecnoglass (+1,754% 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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