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. Keeping that in mind, here are three Russell 2000 stocks to avoid and better alternatives to consider.
Getty Images (GETY)
Market Cap: $607.2 million
With a vast library of over 562 million visual assets documenting everything from breaking news to iconic historical moments, Getty Images (NYSE: GETY) is a global visual content marketplace that licenses photos, videos, illustrations, and music to businesses, media outlets, and creative professionals.
Why Are We Hesitant About GETY?
- Sales trends were unexciting over the last two years as its 1.3% annual growth was below the typical business services company
- Free cash flow margin dropped by 11.2 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Getty Images is trading at $1.48 per share, or 23.8x forward P/E. If you’re considering GETY for your portfolio, see our FREE research report to learn more.
European Wax Center (EWCZ)
Market Cap: $172.6 million
Founded by two siblings, European Wax Center (NASDAQ: EWCZ) is a beauty and waxing salon chain specializing in professional wax services and skincare products.
Why Are We Out on EWCZ?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its stores
- Earnings growth over the last four years fell short of the peer group average as its EPS only increased by 4% annually
- Improving returns on capital suggest management is identifying more profitable investments
At $3.95 per share, European Wax Center trades at 6.1x forward P/E. Dive into our free research report to see why there are better opportunities than EWCZ.
Enact Holdings (ACT)
Market Cap: $5.62 billion
Playing a critical role in helping first-time homebuyers access the housing market, Enact Holdings (NASDAQ: ACT) provides private mortgage insurance that enables lenders to offer home loans with lower down payments while protecting against borrower defaults.
Why Does ACT Give Us Pause?
- Stagnant net premiums earned over the last five years suggest the firm needs alternative growth strategies
- Operational productivity has decreased over the last two years as its combined ratio worsened by 8.9 percentage points
- Earnings per share lagged its peers over the last two years as they only grew by 4.3% annually
Enact Holdings’s stock price of $38.94 implies a valuation ratio of 1x forward P/B. Check out our free in-depth research report to learn more about why ACT doesn’t pass our bar.
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 9 Market-Beating Stocks. 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-small-cap company Comfort Systems (+782% 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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