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. Keeping that in mind, here are three Russell 2000 stocks to avoid and better alternatives to consider.

Market Cap: $883.4 million

Founded in 1983 in California, Mission Produce (NASDAQ:AVO) grows, packages, and distributes avocados.

Why Should You Sell AVO?

Smaller revenue base of $1.39 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy

Forecasted revenue decline of 15% for the upcoming 12 months implies demand will fall off a cliff

Gross margin of 10.9% is below its competitors, leaving less money to invest in areas like marketing and production facilities

Mission Produce is trading at $12.51 per share, or 15.9x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including AVO in your portfolio, it’s free.

Market Cap: $1.62 billion

With expertise dating back to 1963 in specialized materials and precision manufacturing, UFP Technologies (NASDAQ:UFPT) designs and manufactures custom solutions for medical devices, sterile packaging, and other highly engineered products for healthcare and industrial applications.

Why Do We Think Twice About UFPT?

Smaller revenue base of $588.6 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy

UFP Technologies’s stock price of $210.16 implies a valuation ratio of 21x forward P/E. Dive into our free research report to see why there are better opportunities than UFPT.

Market Cap: $4.19 billion

Pivoting from its origins in cryptocurrency mining to become a key player in the AI infrastructure boom, Applied Digital (NASDAQ:APLD) designs and operates specialized data centers that provide high-performance computing infrastructure for artificial intelligence and blockchain applications.

Why Does APLD Give Us Pause?

Earnings per share fell by 78.9% annually over the last two years while its revenue grew, partly because it diluted shareholders

Cash burn makes us question whether it can achieve sustainable long-term growth

Short cash runway increases the probability of a capital raise that dilutes existing shareholders

At $15.91 per share, Applied Digital trades at 40x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why APLD doesn’t pass our bar.

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