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. That said, here are two Russell 2000 stocks that could be the next breakout winners and one that may face some trouble.
One stock to sell:
TowneBank (TOWN)
Market Cap: $3.27 billion
Founded in 1998 with a commitment to community-centered banking in the Hampton Roads region, TowneBank (NASDAQ: TOWN) is a community-focused financial institution providing banking, lending, and wealth management services to individuals and businesses in Virginia and North Carolina.
Why Do We Think Twice About TOWN?
- 5.6% annual revenue growth over the last five years was slower than its banking peers
- Costs have risen faster than its revenue over the last five years, causing its efficiency ratio to worsen by 16.1 percentage points
- Performance over the past five years shows its incremental sales were less profitable, as its 1.3% annual earnings per share growth trailed its revenue gains
TowneBank’s stock price of $36.74 implies a valuation ratio of 1.1x forward P/B. To fully understand why you should be careful with TOWN, check out our full research report (it’s free).
Two stocks to buy:
Graham Corporation (GHM)
Market Cap: $756 million
Founded when its founder patented a unique design for a vacuum system used in the sugar refining process, Graham (NYSE: GHM) provides vacuum and heat transfer equipment for the energy, petrochemical, refining, and chemical sectors.
What Makes GHM Stand Out?
- Annual revenue growth of 17.9% over the last two years was superb and indicates its market share increased during this cycle
- Operating margin expanded by 8.8 percentage points over the last five years as it scaled and became more efficient
- Earnings per share have massively outperformed its peers over the last two years, increasing by 27.1% annually
At $64.43 per share, Graham Corporation trades at 36.2x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
NerdWallet (NRDS)
Market Cap: $713.4 million
Born from founder Tim Chen's frustration with the lack of transparent credit card information when helping his sister in 2009, NerdWallet (NASDAQ: NRDS) is a digital platform that provides financial guidance to help consumers and small businesses make smarter decisions about credit cards, loans, insurance, and other financial products.
Why Will NRDS Outperform?
- Market share has increased this cycle as its 24.3% annual revenue growth over the last five years was exceptional
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 195% exceeded its revenue gains over the last two years
NerdWallet is trading at $11.17 per share, or 6.5x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.
