3 Russell 2000 Stocks We Approach with Caution

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.

The high-risk, high-reward nature of the Russell 2000 makes stock selection critical, and we’re here to guide you toward the right ones. Keeping that in mind, here are three Russell 2000 stocks to steer clear of and some alternatives to watch instead.

Commerce (CMRC)

Market Cap: $374.6 million

As a founding member of the MACH Alliance advocating for modern tech standards, Commerce (NASDAQ:CMRC) provides a SaaS platform that enables businesses to build and manage online stores, connect with marketplaces, and integrate with point-of-sale systems.

Why Do We Avoid CMRC?

1. Customers had second thoughts about committing to its platform over the last year as its average billings growth of 2.4% underwhelmed
2. Estimated sales growth of 4.1% for the next 12 months implies demand will slow from its two-year trend
3. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 8.3% for the last year

Commerce’s stock price of $4.66 implies a valuation ratio of 1.1x forward price-to-sales. Dive into our free research report to see why there are better opportunities than CMRC.

Worthington (WOR)

Market Cap: $2.74 billion

Founded by a steel salesman, Worthington (NYSE:WOR) specializes in steel processing, pressure cylinders, and engineered cabs for commercial markets.

Why Do We Think WOR Will Underperform?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 16.2% annually over the last five years
2. Earnings per share have dipped by 27.4% annually over the past two years, which is concerning because stock prices follow EPS over the long term
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

Worthington is trading at $55.21 per share, or 15x forward P/E. If you’re considering WOR for your portfolio, see our FREE research report to learn more.

Stellar Bancorp (STEL)

Market Cap: $1.62 billion

Created through strategic mergers to serve the growing Texas business community, Stellar Bancorp (NYSE:STEL) is a Texas bank holding company that provides commercial banking services primarily to small and medium-sized businesses and professionals.

Why Are We Out on STEL?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 5.8% annually over the last two years
2. Concessions to defend its market share have ramped up over the last two years as its net interest margin decreased by 36 basis points (100 basis points = 1 percentage point)
3. Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 8.6% annually, worse than its revenue

At $31.74 per share, Stellar Bancorp trades at 1x forward P/B. To fully understand why you should be careful with STEL, check out our full research report (it’s free for active Edge members).

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 5 Strong Momentum Stocks for this week. 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 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

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