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.
Picking the right small caps isn’t easy, and that’s exactly why StockStory exists - to help you focus on the best opportunities. Keeping that in mind, here are three Russell 2000 stocks to avoid and better alternatives to consider.
8x8 (EGHT)
Market Cap: $241.7 million
Named after its founding year (1987) with "8x8" representing binary code for communications, 8x8 (NASDAQ: EGHT) provides cloud-based contact center and unified communications solutions that enable businesses to manage customer interactions and internal communications through a single platform.
Why Do We Avoid EGHT?
- Products, pricing, or go-to-market strategy may need some adjustments as its 4.6% average billings growth over the last year was weak
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- Operating margin didn’t move over the last year, showing it couldn’t increase its efficiency
8x8 is trading at $1.74 per share, or 0.4x forward price-to-sales. Read our free research report to see why you should think twice about including EGHT in your portfolio.
Lumen (LUMN)
Market Cap: $6.90 billion
With approximately 350,000 route miles of fiber optic cable spanning North America and the Asia Pacific, Lumen Technologies (NYSE: LUMN) operates a vast fiber optic network that provides communications, cloud connectivity, security, and IT solutions to businesses and consumers.
Why Are We Out on LUMN?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 10% annually over the last five years
- Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 17.8% annually, worse than its revenue
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 7.3 percentage points
Lumen’s stock price of $6.68 implies a valuation ratio of 5.7x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than LUMN.
Payoneer (PAYO)
Market Cap: $2.41 billion
Founded during the early days of global e-commerce in 2005 to solve international payment challenges, Payoneer (NASDAQ: PAYO) provides financial technology services that enable small and medium-sized businesses to send and receive payments globally across borders.
Why Does PAYO Worry Us?
- Performance over the past two years shows its incremental sales were less profitable, as its 4.8% annual earnings per share growth trailed its revenue gains
- Low return on equity reflects management’s struggle to allocate funds effectively
At $7.12 per share, Payoneer trades at 25.2x forward P/E. To fully understand why you should be careful with PAYO, check out our full research report (it’s free).
Stocks We Like More
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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 Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.
