By: StockStory

August 15, 2025 at 00:33 AM EDT

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. Picking the right small caps isn’t easy, and that’s exactly why StockStory exists – to help you focus on the best opportunities. Keeping that in mind, here are three Russell 2000 stocks to steer clear of and some alternatives to watch instead.

### Foot Locker (FL)

Market Cap: $2.45 billion

Known for store associates whose uniforms resemble those of referees, Foot Locker (NYSE: FL) is a specialty retailer that sells athletic footwear, clothing, and accessories.

**Why Do We Think FL Will Underperform?**
1. Lagging same‑store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand.
2. Poor expense management has led to an operating margin of –0.5% that is below the industry average.
3. High net‑debt‑to‑EBITDA ratio of 7× increases the risk of forced asset sales or dilutive financing if operational performance weakens.

At $25.69 per share, Foot Locker trades at 19.7× forward P/E. To fully understand why you should be careful with FL, check out our full research report (it’s free).

### Herc (HRI)

Market Cap: $4.18 billion

Formerly a subsidiary of Hertz Corporation and with a logo that still bears some similarities to its former parent, Herc Holdings (NYSE: HRI) provides equipment rental and related services to a wide range of industries.

**Why Does HRI Worry Us?**
1. Incremental sales over the last two years were much less profitable as its earnings per share fell by 3.4% annually while its revenue grew.
2. Free cash flow margin shrank 13.8 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive.
3. 6× net‑debt‑to‑EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly.

Herc’s stock price of $125.85 implies a valuation ratio of 10.2× forward P/E. Read our free research report to see why you should think twice about including HRI in your portfolio.

### Fastly (FSLY)

Market Cap: $1.02 billion

Founded in 2011, Fastly (NYSE: FSLY) provides content delivery and edge cloud computing services, enabling enterprises and developers to deliver fast, secure, and scalable digital content and experiences.

**Why Is FSLY Risky?**
1. Sales trends were unexciting over the last three years as its 13.6% annual growth was below the typical software company.
2. Gross margin of 53.9% is way below its competitors, leaving less money to invest in areas like marketing and R&D.
3. Suboptimal cost structure is highlighted by its history of operating margin losses.

Fastly is trading at $6.95 per share, or 1.6× forward price‑to‑sales. Dive into our free research report to see why there are better opportunities than FSLY.

## Stocks We Like More

When Trump unveiled his aggressive tariff plan in April 2025, markets tanked as investors feared a full‑blown trade war. But those who panicked and sold missed the subsequent rebound that’s already erased most losses. Don’t let fear keep you from great opportunities and take a look at Top 5 Growth Stocks for this month. This is a curated list of our _High Quality_ stocks that have generated a market‑beating return of 183% over the last five years (as of March 31st 2025). Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under‑the‑radar businesses like the once‑small‑cap company Exlservice (+354% five‑year return).

Find your next big winner with StockStory today for free.

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3 Russell 2000 Stocks That Concern Us

The article warns investors about three small‑cap Russell 2000 stocks—Foot Locker, Herc Holdings, and Fastly—highlighting weak sales, high debt, and low margins. It also promotes StockStory’s research and lists alternative growth stocks, noting the rebound after Trump’s 2025 tariff announcement.