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.
The high-risk, high-reward nature of the Russell 2000 makes stock selection critical, and we’re here to guide you toward the right ones. That said, here are three Russell 2000 stocks that don’t make the cut and some better choices instead.
Agilysys (AGYS)
Market Cap: $3.39 billion
With a tech stack that powers everything from check-in to checkout at some of the world's top hospitality venues, Agilysys (NASDAQ: AGYS) develops and provides cloud-based and on-premise software solutions for hotels, resorts, casinos, and restaurants to manage operations and enhance guest experiences.
Why Does AGYS Give Us Pause?
- Revenue increased by 15.5% annually over the last five years, acceptable on an absolute basis but tepid for a software company enjoying secular tailwinds
- High servicing costs result in a relatively inferior gross margin of 61.8% that must be offset through increased usage
- Operating profits and efficiency rose over the last year as it benefited from some fixed cost leverage
At $120.51 per share, Agilysys trades at 10.2x forward price-to-sales. To fully understand why you should be careful with AGYS, check out our full research report (it’s free for active Edge members).
Lindblad Expeditions (LIND)
Market Cap: $813.9 million
Founded by explorer Sven-Olof Lindblad in 1979, Lindblad Expeditions (NASDAQ: LIND) offers cruising experiences to remote destinations in partnership with National Geographic.
Why Do We Avoid LIND?
- Annual revenue growth of 14.5% over the last two years was below our standards for the consumer discretionary sector
- Subpar operating margin of 4.8% constrains its ability to invest in process improvements or effectively respond to new competitive threats
- Forecasted free cash flow margin suggests the company will fail to improve its cash conversion over the next year
Lindblad Expeditions is trading at $14.72 per share, or 120x forward P/E. If you’re considering LIND for your portfolio, see our FREE research report to learn more.
LGI Homes (LGIH)
Market Cap: $1.03 billion
Based in Texas, LGI Homes (NASDAQ: LGIH) is a homebuilding company specializing in constructing affordable, entry-level single-family homes in desirable communities across the United States.
Why Is LGIH Risky?
- Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 10.4% declines over the past two years
- Eroding returns on capital suggest its historical profit centers are aging
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
LGI Homes’s stock price of $44.47 implies a valuation ratio of 12.5x forward P/E. Read our free research report to see why you should think twice about including LGIH in your portfolio.
Stocks We Like More
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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-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today.
