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.
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 is one Russell 2000 stock that could be a breakout winner and two that may face some trouble.
Two Stocks to Sell:
Wabash (WNC)
Market Cap: $342.9 million
With its first trailer reportedly built on two sawhorses, Wabash (NYSE: WNC) offers semi trailers, liquid transportation containers, truck bodies, and equipment for moving goods.
Why Do We Avoid WNC?
- Backlog has dropped by 32.8% on average over the past two years, suggesting it’s losing orders as competition picks up
- Gross margin of 13.9% reflects its high production costs
- Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 30.5% annually, worse than its revenue
Wabash is trading at $8.19 per share, or 8.6x forward P/E. Dive into our free research report to see why there are better opportunities than WNC.
Gorman-Rupp (GRC)
Market Cap: $968.9 million
Powering fluid dynamics since 1934, Gorman-Rupp (NYSE: GRC) has evolved from its Ohio origins into a global manufacturer and seller of pumps and pump systems.
Why Does GRC Give Us Pause?
- Sales trends were unexciting over the last two years as its 7.1% annual growth was below the typical industrials company
- Estimated sales growth of 3.8% for the next 12 months implies demand will slow from its two-year trend
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 4.2 percentage points
At $36.85 per share, Gorman-Rupp trades at 17.2x forward P/E. If you’re considering GRC for your portfolio, see our FREE research report to learn more.
One Stock to Buy:
Stride (LRN)
Market Cap: $6.85 billion
Formerly known as K12, Stride (NYSE: LRN) is an education technology company providing education solutions through digital platforms.
Why Will LRN Outperform?
- Rise in enrollments indicates high demand for its offerings
- Free cash flow margin expanded by 6 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
- Rising returns on capital show management is finding more attractive investment opportunities
Stride’s stock price of $160.47 implies a valuation ratio of 21.3x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.
