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. That said, here are three Russell 2000 stocks that don’t make the cut and some better choices instead.
Health Catalyst (HCAT)
Market Cap: $143.4 million
Built on its "Health Catalyst Flywheel" methodology that emphasizes measurable outcomes, Health Catalyst (NASDAQ:HCAT) provides data and analytics technology and services that help healthcare organizations manage their data and drive measurable clinical, financial, and operational improvements.
Why Is HCAT Risky?
- Flat billings over the last year suggest it may need to improve its products, pricing, or go-to-market strategy to reinvigorate demand
- Gross margin of 50.4% reflects its high servicing costs
- Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment
Health Catalyst is trading at $1.93 per share, or 0.4x forward price-to-sales. To fully understand why you should be careful with HCAT, check out our full research report (it’s free).
Portillo's (PTLO)
Market Cap: $275.8 million
Begun as a Chicago hot dog stand in 1963, Portillo’s (NASDAQ:PTLO) is a casual restaurant chain that serves Chicago-style hot dogs and beef sandwiches as well as fries and shakes.
Why Should You Sell PTLO?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Weak free cash flow margin of -0.1% has deteriorated further over the last year as its investments increased
- High net-debt-to-EBITDA ratio of 7× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Portillo’s stock price of $3.82 implies a valuation ratio of 17.1x forward P/E. Read our free research report to see why you should think twice about including PTLO in your portfolio.
Tennant (TNC)
Market Cap: $1.44 billion
As the world’s largest manufacturer of autonomous mobile robots, Tennant (NYSE:TNC) designs, manufactures, and sells cleaning products to various sectors.
Why Do We Think TNC Will Underperform?
- Annual sales declines of 1.5% for the past two years show its products and services struggled to connect with the market during this cycle
- Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $84.76 per share, Tennant trades at 14.6x forward P/E. Check out our free in-depth research report to learn more about why TNC doesn’t pass our bar.
High-Quality Stocks for All Market Conditions
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don’t just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
But our AI platform says the party isn’t over. Find out which 9 stocks made the cut this week — FREE. Get Our Top 9 Market-Beating Stocks for Free HERE.
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-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.