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.
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 avoid and better alternatives to consider.
C3.ai (AI)
Market Cap: $1.61 billion
Named after the three Cs of its original focus—carbon, cloud computing, and customer relationship management—C3.ai (NYSE: AI) provides enterprise AI software that helps organizations develop, deploy, and operate large-scale artificial intelligence applications across various industries.
Why Are We Bearish on AI?
- Billings have dropped by 33.8% over the last year, suggesting it might have to lower prices to stimulate growth
- Extended payback periods on sales investments suggest the company’s platform isn’t resonating enough to drive efficient sales conversions
- Negative free cash flow raises questions about the return timeline for its investments
At $10.28 per share, C3.ai trades at 6.3x forward price-to-sales. To fully understand why you should be careful with AI, check out our full research report (it’s free).
Glacier Bancorp (GBCI)
Market Cap: $6.16 billion
Operating through seventeen distinct bank divisions with local brands and management teams, Glacier Bancorp (NYSE: GBCI) is a bank holding company that provides various banking services to individuals and businesses across eight western states.
Why Are We Hesitant About GBCI?
- Annual revenue growth of 8.5% over the last five years was below our standards for the banking sector
- Earnings per share fell by 4.8% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Annual tangible book value per share growth of 3.1% over the last five years was below our standards for the banking sector
Glacier Bancorp is trading at $47.32 per share, or 1.4x forward P/B. If you’re considering GBCI for your portfolio, see our FREE research report to learn more.
ProFrac (ACDC)
Market Cap: $958 million
Operating one of the largest electric-powered fracturing fleets in North America, ProFrac (NASDAQ: ACDC) provides hydraulic fracturing services that help oil and gas companies extract hydrocarbons from underground shale formations.
Why Is ACDC Risky?
- Costly operations and weak unit economics result in an inferior gross margin of 32.1% that must be offset through higher production volumes
- Costs have risen faster than its revenue over the last five years, causing its EBITDA margin to decline by 14.8 percentage points
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 3.7% for the last five years
ProFrac’s stock price of $5.25 implies a valuation ratio of 6.3x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why ACDC doesn’t pass our bar.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+1,154% between June 2020 and June 2025). Find your next big winner with StockStory today.
