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. That said, here is one Russell 2000 stock that could deliver strong gains and two best left off your watchlist.
Two Stocks to Sell:
BeautyHealth (SKIN)
Market Cap: $195.1 million
Operating in the emerging beauty health category, the appropriately named BeautyHealth (NASDAQ: SKIN) is a skincare company best known for its Hydrafacial product that cleanses and hydrates skin.
Why Do We Steer Clear of SKIN?
- Products aren't resonating with the market as its revenue declined by 4.4% annually over the last three years
- Revenue base of $301.9 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Persistent operating margin losses suggest the business manages its expenses poorly
BeautyHealth’s stock price of $1.53 implies a valuation ratio of 10.1x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including SKIN in your portfolio.
Quanex (NX)
Market Cap: $854.3 million
Starting in the seamless tube industry, Quanex (NYSE: NX) manufactures building products like window, door, kitchen, and bath cabinet components.
Why Is NX Not Exciting?
- Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 18.2 percentage points
- Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 8.5% annually
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $18.82 per share, Quanex trades at 9.2x forward P/E. Check out our free in-depth research report to learn more about why NX doesn’t pass our bar.
One Stock to Buy:
Nelnet (NNI)
Market Cap: $4.70 billion
Starting as a student loan servicer in the 1970s and evolving through the changing landscape of education finance, Nelnet (NYSE: NNI) provides student loan servicing, education technology, payment processing, and banking services while managing a portfolio of education loans.
Why Is NNI a Top Pick?
- Market share has increased this cycle as its 18% annual revenue growth over the last two years was exceptional
- Share repurchases over the last two years enabled its annual earnings per share growth of 37.2% to outpace its revenue gains
- Management team has demonstrated it can invest in profitable ventures through its 10.7% five-year return on equity
Nelnet is trading at $130.91 per share, or 16.2x 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
Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.
The names generating the next wave of massive growth are right here in our Top 5 Strong Momentum 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-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
