Small-cap stocks in the Russell 2000 (^RUT) can be a goldmine for investors looking beyond the usual large-cap names. But with less stability and fewer resources than their bigger counterparts, these companies face steeper challenges in scaling their businesses.
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 that don’t make the cut and some better choices instead.
Varonis Systems (VRNS)
Market Cap: $3.09 billion
Beginning with protecting Windows file shares in 2005 and evolving into a comprehensive security platform, Varonis Systems (NASDAQ: VRNS) provides data security software that helps organizations protect sensitive information, detect threats, and comply with privacy regulations.
Why Does VRNS Fall Short?
- Revenue increased by 11.8% annually over the last two years, acceptable on an absolute basis but tepid for a software company enjoying secular tailwinds
- Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 2.1 percentage points
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 6.5 percentage points
At $26.19 per share, Varonis Systems trades at 4.3x forward price-to-sales. Read our free research report to see why you should think twice about including VRNS in your portfolio.
Dine Brands (DIN)
Market Cap: $500.4 million
Operating a franchise model, Dine Brands (NYSE: DIN) is a casual restaurant chain that owns the Applebee’s and IHOP banners.
Why Do We Think DIN Will Underperform?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new diners into its restaurants
- Efficiency has decreased over the last year as its operating margin fell by 6.7 percentage points
- 7× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Dine Brands’s stock price of $34.75 implies a valuation ratio of 7.5x forward P/E. If you’re considering DIN for your portfolio, see our FREE research report to learn more.
Ladder Capital (LADR)
Market Cap: $1.34 billion
Founded during the 2008 financial crisis when traditional lenders retreated from commercial real estate, Ladder Capital (NYSE: LADR) is a real estate investment trust that originates commercial real estate loans, owns commercial properties, and invests in real estate securities.
Why Are We Out on LADR?
- Sales tumbled by 9.7% annually over the last two years, showing market trends are working against its favor during this cycle
- Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
- Flat tangible book value per share over the last two years suggest it must find different ways to enhance shareholder value during this cycle
Ladder Capital is trading at $10.66 per share, or 0.9x forward P/B. Check out our free in-depth research report to learn more about why LADR doesn’t pass our bar.
Stocks We Like More
Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.
The names generating the next wave of massive growth are right here in our Top 5 Strong Momentum Stocks for this week. 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 Exlservice (+354% five-year return). Find your next big winner with StockStory today.
