3 Russell 2000 Stocks We Think Twice About

The Russell 2000 (^RUT) is packed with potential breakout stocks, thanks to its focus on smaller companies with high growth potential. However, smaller size also means these businesses often lack the resilience and financial flexibility of large-cap firms, making careful selection crucial.

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 steer clear of and some alternatives to watch instead.

Photronics (PLAB)

Market Cap: $1.99 billion

Sporting a global footprint of facilities, Photronics (NASDAQ:PLAB) is a manufacturer of photomasks, templates used to transfer patterns onto semiconductor wafers.

Why Does PLAB Fall Short?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 2% annually over the last two years
2. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 3.1%
3. High input costs result in an inferior gross margin of 35.7% that must be offset through higher volumes

At $33.65 per share, Photronics trades at 2.3x trailing 12-month price-to-sales. Dive into our free research report to see why there are better opportunities than PLAB.

CTS (CTS)

Market Cap: $1.38 billion

With roots dating back to 1896 and a global manufacturing footprint, CTS (NYSE:CTS) designs and manufactures sensors, connectivity components, and actuators for aerospace, defense, industrial, medical, and transportation markets.

Why Does CTS Worry Us?

1. Flat sales over the last two years suggest it must find different ways to grow during this cycle
2. Flat earnings per share over the last two years lagged its peers
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

CTS’s stock price of $47.89 implies a valuation ratio of 20x forward P/E. If you’re considering CTS for your portfolio, see our FREE research report to learn more.

Benchmark (BHE)

Market Cap: $1.95 billion

Operating as a critical behind-the-scenes partner for complex technology products since 1979, Benchmark Electronics (NYSE:BHE) provides advanced manufacturing, engineering, and technology solutions for original equipment manufacturers across aerospace, medical, industrial, and technology sectors.

Why Are We Wary of BHE?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 3.2% annually over the last two years
2. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 0.7% for the last five years
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities

Benchmark is trading at $54.80 per share, or 21.3x forward P/E. To fully understand why you should be careful with BHE, check out our full research report (it’s free).

High-Quality Stocks for All Market Conditions

ONE MORE THING: Top 6 Stocks for This Week. This market is separating quality stocks from expensive ones fast. AI taking down whole sectors with no warning. In a rotation this fast, you need more than a list of good companies.

Our AI system flagged Palantir before it ran 1,662%. AppLovin before it ran 753%. Nvidia before it ran 1,178%. Each week it produces 6 new names that pass the same tests. Get Our Top 6 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-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.