The Russell 2000 (^RUT) is packed with potential breakout stocks, thanks to its focus on smaller companies with high growth potential. However, smaller size also means these businesses often lack the resilience and financial flexibility of large-cap firms, making careful selection crucial.
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:
Napco (NSSC)
Market Cap: $984.1 million
Protecting everything from schools to government facilities since 1969, Napco Security Technologies (NASDAQ:NSSC) manufactures electronic security devices, access control systems, and communication services for intrusion and fire alarm systems.
Why Does NSSC Worry Us?
- Annual revenue growth of 3.7% over the last two years was below our standards for the business services sector
- Revenue base of $181.2 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Projected sales are flat for the next 12 months, implying demand will slow from its two-year trend
At $27.60 per share, Napco trades at 23.6x forward P/E. Read our free research report to see why you should think twice about including NSSC in your portfolio.
First Advantage (FA)
Market Cap: $3.09 billion
Processing approximately 100 million background checks annually across more than 200 countries and territories, First Advantage (NASDAQ:FA) provides employment background screening, identity verification, and compliance solutions to help companies manage hiring risks.
Why Are We Hesitant About FA?
- Earnings per share have contracted by 8.2% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance
- Investments to defend its competitive moat have ramped up over the last five years as its free cash flow margin decreased by 17.1 percentage points
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
First Advantage is trading at $17.72 per share, or 18.6x forward P/E. Dive into our free research report to see why there are better opportunities than FA.
One Stock to Watch:
Thermon (THR)
Market Cap: $894.1 million
Creating the first packaged tracing systems, Thermon (NYSE:THR) is a leading provider of engineered industrial process heating solutions for process industries.
Why Could THR Be a Winner?
- Superior product capabilities and pricing power are reflected in its premier gross margin of 42.8%
- Operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
- Performance over the past five years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 20.8% outpaced its revenue gains
Thermon’s stock price of $27.02 implies a valuation ratio of 13.3x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free.
Stocks We Like Even More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 6 Stocks for this week. 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-micro-cap company Kadant (+351% 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