The Russell 2000 (^RUT) is home to many small-cap stocks, offering investors the chance to uncover hidden gems before the broader market catches on. However, these companies often come with higher volatility and risk, as their smaller size makes them more vulnerable to economic downturns.
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 that don’t make the cut and some better choices instead.
Penguin Solutions (PENG)
Market Cap: $3.26 billion
Based in the US, Penguin Solutions (NASDAQ: PENG) is a diversified semiconductor company offering memory, digital, and LED products.
Why Does PENG Give Us Pause?
- Annual revenue growth of 2.8% over the last five years was below our standards for the semiconductor sector
- Gross margin of 28.6% reflects its high production costs
- Low free cash flow margin of 9% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
At $63.00 per share, Penguin Solutions trades at 25x forward P/E. Dive into our free research report to see why there are better opportunities than PENG.
Rumble (RUM)
Market Cap: $2.56 billion
Founded in 2013 as a champion for content creator rights and free expression, Rumble (NASDAQ: RUM) is a video sharing platform that positions itself as a free speech alternative to mainstream platforms, offering creators more favorable revenue-sharing opportunities.
Why Are We Cautious About RUM?
- Modest revenue base of $102.4 million means it has less operating leverage but can also grow faster if it executes the right sales strategy
- Negative free cash flow raises questions about the return timeline for its investments
- EBITDA losses may force it to accept punitive lending terms or high-cost debt
Rumble’s stock price of $7.72 implies a valuation ratio of 18.3x trailing 12-month price-to-sales. Read our free research report to see why you should think twice about including RUM in your portfolio.
Hope Bancorp (HOPE)
Market Cap: $1.66 billion
With roots in serving Korean-American communities and now expanded to a multi-ethnic clientele across 12 states, Hope Bancorp (NASDAQ: HOPE) operates Bank of Hope, providing commercial and retail banking services with a focus on serving multi-ethnic communities across the United States.
Why Do We Think HOPE Will Underperform?
- Annual net interest income growth of 1% over the last five years was below our standards for the banking sector
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 2.2% annually
- Tangible book value per share was flat over the last two years, indicating it’s failed to build equity value this cycle
Hope Bancorp is trading at $13.03 per share, or 0.7x forward P/B. If you’re considering HOPE for your portfolio, see our FREE research report to learn 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 Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.
