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.
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.
Shake Shack (SHAK)
Market Cap: $2.35 billion
Started as a hot dog cart in New York City’s Madison Square Park, Shake Shack (NYSE:SHAK) is a fast-food restaurant known for its burgers and milkshakes.
Why Are We Wary of SHAK?
- Operating margin of 2.3% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
- Low free cash flow margin of 2% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- ROIC of -0.3% reflects management’s challenges in identifying attractive investment opportunities
At $54.84 per share, Shake Shack trades at 46.8x forward P/E. Check out our free in-depth research report to learn more about why SHAK doesn’t pass our bar.
Laureate Education (LAUR)
Market Cap: $5.31 billion
Founded in 1998 by Douglas L. Becker and based in Miami, Laureate Education (NASDAQ:LAUR) is a global network of higher education institutions.
Why Do We Think LAUR Will Underperform?
- Performance surrounding its enrolled students has lagged its peers
- Incremental sales over the last five years were less profitable as its 4.2% annual earnings per share growth lagged its revenue gains
- Free cash flow margin is not anticipated to grow over the next year
Laureate Education’s stock price of $36.38 implies a valuation ratio of 18.3x forward P/E. If you’re considering LAUR for your portfolio, see our FREE research report to learn more.
Insight Enterprises (NSIT)
Market Cap: $3.34 billion
With over 35 years of IT expertise and partnerships with more than 8,000 technology providers, Insight Enterprises (NASDAQ:NSIT) provides end-to-end digital transformation solutions that help businesses modernize their IT infrastructure and maximize the value of technology.
Why Is NSIT Risky?
- Sales were flat over the last five years, indicating it’s failed to expand this cycle
- Estimated sales growth of 1.7% for the next 12 months is soft and implies weaker demand
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 2.1% annually
Insight Enterprises is trading at $119.59 per share, or 10.2x forward P/E. Read our free research report to see why you should think twice about including NSIT in your portfolio.
Stocks We Like More
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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 Kadant (+351% five-year return). Find your next big winner with StockStory today.
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