3 Russell 2000 Stocks Skating on Thin Ice

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.

America's Car-Mart (CRMT)

Market Cap: $421.1 million

With a strong presence in the Southern and Central US, America’s Car-Mart (NASDAQ:CRMT) sells used cars to budget-conscious consumers.

Why Do We Avoid CRMT?

1. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
2. Commoditized inventory, bad unit economics, and high competition are reflected in its low gross margin of 20.2%
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

At $50.98 per share, America's Car-Mart trades at 16.2x forward P/E. Read our free research report to see why you should think twice about including CRMT in your portfolio.

Covenant Logistics (CVLG)

Market Cap: $614.8 million

Started with 25 trucks and 50 trailers, Covenant Logistics (NASDAQ:CVLG) is a provider of expedited long haul freight services, offering a range of logistics solutions.

Why Should You Dump CVLG?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 3% annually over the last two years
2. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
3. 25 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

Covenant Logistics’s stock price of $23.15 implies a valuation ratio of 6.5x forward EV-to-EBITDA. If you’re considering CVLG for your portfolio, see our FREE research report to learn more.

Orion (ORN)

Market Cap: $333.8 million

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

Why Do We Steer Clear of ORN?

1. Annual revenue growth of 2.4% over the last five years was below our standards for the industrials sector
2. Earnings per share fell by 10.1% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
3. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital

Orion is trading at $8.44 per share, or 51.8x forward P/E. Check out our free in-depth research report to learn more about why ORN doesn’t pass our bar.

High-Quality Stocks for All Market Conditions

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking 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 176% over the last five years.

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 Exlservice (+354% five-year return). Find your next big winner with StockStory today for free.