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 avoid and better alternatives to consider.
Five9 (FIVN)
Market Cap: $1.69 billion
Taking its name from the "five nines" (99.999%) standard for optimal service reliability in telecommunications, Five9 (NASDAQ: FIVN) provides cloud-based software that enables businesses to run their contact centers with tools for customer service, sales, and marketing across multiple communication channels.
Why Does FIVN Worry Us?
- Products, pricing, or go-to-market strategy may need some adjustments as its 13.6% average billings growth over the last year was weak
- Estimated sales growth of 8.2% for the next 12 months implies demand will slow from its two-year trend
- Gross margin of 55.3% reflects its high servicing costs
At $22 per share, Five9 trades at 1.6x forward price-to-sales. To fully understand why you should be careful with FIVN, check out our full research report (it’s free for active Edge members).
GATX (GATX)
Market Cap: $6.27 billion
Originally founded to ship beer, GATX (NYSE: GATX) provides leasing and management services for railcars and other transportation assets globally.
Why Are We Wary of GATX?
- Number of active railcars has disappointed over the past two years, indicating weak demand for its offerings
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
GATX is trading at $175.90 per share, or 19x forward P/E. Read our free research report to see why you should think twice about including GATX in your portfolio.
FirstCash (FCFS)
Market Cap: $7.11 billion
Offering a financial lifeline to the unbanked and credit-constrained since 1988, FirstCash (NASDAQ: FCFS) operates pawn stores across the U.S. and Latin America while also providing retail point-of-sale payment solutions for credit-constrained consumers.
Why Are We Cautious About FCFS?
- Annual revenue growth of 7.4% over the last two years was below our standards for the financials sector
- Loan losses and capital returns have eroded its tangible book value per share this cycle as its tangible book value per share declined by 14.1% annually over the last five years
FirstCash’s stock price of $160.21 implies a valuation ratio of 18.4x forward P/E. Check out our free in-depth research report to learn more about why FCFS doesn’t pass our bar.
Stocks We Like More
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Don’t let fear keep you from great opportunities and take a look at 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-small-cap company Exlservice (+354% 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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