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. That said, here are three Russell 2000 stocks that don’t make the cut and some better choices instead.
Brinker International (EAT)
Market Cap: $6.47 billion
Founded by Norman Brinker in Dallas, Brinker International (NYSE: EAT) is a casual restaurant chain that operates the Chili’s, Maggiano’s Little Italy, and It’s Just Wings banners.
Why Is EAT Not Exciting?
- Limited expansion of restaurants suggests it’s prioritizing efficiency over growth at this stage
- Estimated sales growth of 3.5% for the next 12 months implies demand will slow from its six-year trend
- Gross margin of 17% reflects the bad unit economics inherent in most restaurant businesses
Brinker International is trading at $146.69 per share, or 13.8x forward P/E. If you’re considering EAT for your portfolio, see our FREE research report to learn more.
First Watch (FWRG)
Market Cap: $1.01 billion
Based on a nautical reference to the first work shift aboard a ship, First Watch (NASDAQ: FWRG) is a chain of breakfast and brunch restaurants whose menu is heavily-focused on eggs and griddle items such as pancakes.
Why Does FWRG Worry Us?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its menu offerings and dining experience
- Long-term business health is up for debate as its cash burn has increased over the last year
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
First Watch’s stock price of $16.50 implies a valuation ratio of 49.2x forward P/E. Read our free research report to see why you should think twice about including FWRG in your portfolio.
NeoGenomics (NEO)
Market Cap: $1.50 billion
Operating a network of CAP-accredited and CLIA-certified laboratories across the United States and United Kingdom, NeoGenomics (NASDAQ: NEO) provides specialized cancer diagnostic testing services, including genetic analysis, molecular testing, and pathology consultation for oncologists and healthcare providers.
Why Do We Think NEO Will Underperform?
- Modest revenue base of $709.2 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Negative returns on capital show that some of its growth strategies have backfired
- High net-debt-to-EBITDA ratio of 6× could force the company to raise capital at unfavorable terms if market conditions deteriorate
At $11.64 per share, NeoGenomics trades at 77.9x forward P/E. Check out our free in-depth research report to learn more about why NEO doesn’t pass our bar.
Stocks We Like More
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 9 Market-Beating Stocks. 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-small-cap company Exlservice (+354% 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.
