3 Russell 2000 Stocks Skating on Thin Ice

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.

Zeta (ZETA)

Market Cap: $3.57 billion

Co-founded by former Apple CEO John Sculley, Zeta Global (NYSE:ZETA) provides software and data analytics tools that help companies market their products to billions of customers.

Why Does ZETA Give Us Pause?

1. Gross margin of 60.4% is below its competitors, leaving less money to invest in areas like marketing and R&D
2. Rapid expansion strategy came at the expense of operating margin profitability
3. Low free cash flow margin of 9.8% for the last year gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders

Zeta’s stock price of $15.24 implies a valuation ratio of 2.5x forward price-to-sales. If you’re considering ZETA for your portfolio, see our FREE research report to learn more.

Champion Homes (SKY)

Market Cap: $3.87 billion

Founded in 1951, Champion Homes (NYSE:SKY) is a manufacturer of modular homes and buildings in North America.

Why Is SKY Not Exciting?

1. Disappointing unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
2. Earnings per share have contracted by 28.9% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

At $67.21 per share, Champion Homes trades at 17.1x forward P/E. Dive into our free research report to see why there are better opportunities than SKY.

SiriusPoint (SPNT)

Market Cap: $2.26 billion

Created through the 2021 merger of Third Point Reinsurance and Sirius International Insurance Group, SiriusPoint (NYSE:SPNT) is a global underwriter that provides multi-line insurance and reinsurance products and services to businesses, government entities, and other risk-bearing vehicles worldwide.

Why Should You Dump SPNT?

1. Insurance products are facing market challenges during this cycle, as seen in its flat net premiums earned over the last two years
2. Expenses have increased as a percentage of revenue over the last four years as its pre-tax profit margin fell by 30.5 percentage points
3. Below-average return on equity indicates management struggled to find compelling investment opportunities

SiriusPoint is trading at $19.38 per share, or 0.8x trailing 12-month price-to-sales. Check out our free in-depth research report to learn more about why SPNT doesn’t pass our bar.

Stocks We Like More

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 183% over the last five years (as of March 31st 2025).

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-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