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. That said, here are three Russell 2000 stocks to steer clear of and some alternatives to watch instead.
Supernus Pharmaceuticals (SUPN)
Market Cap: $2.74 billion
With a diverse portfolio of eight FDA-approved medications targeting neurological conditions, Supernus Pharmaceuticals (NASDAQ:SUPN) develops and markets treatments for central nervous system disorders including epilepsy, ADHD, Parkinson's disease, and migraine.
Why Are We Out on SUPN?
- Sales trends were unexciting over the last five years as its 6.5% annual growth was below the typical healthcare company
- Revenue base of $822.8 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- 16.5 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Supernus Pharmaceuticals is trading at $47.10 per share, or 3x forward price-to-sales. Check out our free in-depth research report to learn more about why SUPN doesn’t pass our bar.
TowneBank (TOWN)
Market Cap: $3.45 billion
Founded in 1998 with a commitment to community-centered banking in the Hampton Roads region, TowneBank (NASDAQ:TOWN) is a community-focused financial institution providing banking, lending, and wealth management services to individuals and businesses in Virginia and North Carolina.
Why Are We Wary of TOWN?
- Muted 5.6% annual revenue growth over the last five years shows its demand lagged behind its banking peers
- Operational productivity has decreased over the last five years as its efficiency ratio worsened by 16.1 percentage points
- Performance over the past five years shows its incremental sales were less profitable, as its 1.3% annual earnings per share growth trailed its revenue gains
TowneBank’s stock price of $37.86 implies a valuation ratio of 1.1x forward P/B. Dive into our free research report to see why there are better opportunities than TOWN.
Byline Bancorp (BY)
Market Cap: $1.77 billion
Ranking as the fifth most active Small Business Administration lender in the country, Byline Bancorp (NYSE:BY) is a Chicago-based bank that provides banking services to small and medium-sized businesses, commercial real estate developers, and consumers.
Why Are We Cautious About BY?
- Annual revenue growth of 6.8% over the last two years was below our standards for the banking sector
- Estimated net interest income growth of 2% for the next 12 months implies demand will slow from its five-year trend
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 7.5% annually
At $39.25 per share, Byline Bancorp trades at 1.3x forward P/B. To fully understand why you should be careful with BY, 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 Comfort Systems (+1,154% between June 2020 and June 2025). Find your next big winner with StockStory today.