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.

Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. That said, here is one Russell 2000 stock that could be a breakout winner and two that may struggle to keep up.

Two Stocks to Sell:

PennyMac Financial Services (PFSI)

Market Cap: $4.81 billion

Founded during the 2008 financial crisis to help address the mortgage market meltdown, PennyMac Financial Services (NYSE: PFSI) is a specialty financial services company that originates, services, and manages investments related to residential mortgage loans in the United States.

Why Does PFSI Worry Us?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 10.4% annually over the last five years
2. 7.1% annual net interest income growth over the last five years was slower than its banking peers
3. Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term

At $92.44 per share, PennyMac Financial Services trades at 1x forward P/B. Check out our free in-depth research report to learn more about why PFSI doesn’t pass our bar.

Arbor Realty Trust (ABR)

Market Cap: $1.46 billion

With roots dating back to 2003 and a focus on the stability of multifamily housing, Arbor Realty Trust (NYSE: ABR) is a specialized lender that provides financing solutions for multifamily and commercial real estate while also originating and servicing government-backed mortgage loans.

Why Do We Pass on ABR?

1. Sales tumbled by 14.8% annually over the last two years, showing market trends are working against its favor during this cycle
2. Sales were less profitable over the last two years as its earnings per share fell by 26% annually, worse than its revenue declines
3. Tangible book value per share tumbled by 4% annually over the last two years, showing banking sector trends are working against its favor during this cycle

Arbor Realty Trust’s stock price of $7.44 implies a valuation ratio of 0.7x forward P/B. Read our free research report to see why you should think twice about including ABR in your portfolio.

One Stock to Buy:

Remitly (RELY)

Market Cap: $3.61 billion

With Amazon founder Jeff Bezos as an early investor, Remitly (NASDAQ: RELY) is an online platform that enables consumers to safely and quickly send money globally.

Why Should You Buy RELY?

1. Has the opportunity to boost monetization through new features and premium offerings as its active customers have grown by 29.2% annually over the last two years
2. Performance over the past three years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 108% outpaced its revenue gains
3. Free cash flow margin grew by 34.7 percentage points over the last few years, giving the company more chips to play with

Remitly is trading at $16.95 per share, or 9.5x forward EV/EBITDA. Is now a good time to buy? Find out in our full research report, it’s free.

Stocks We Like Even 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 6 Stocks for this week. 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-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.