Small-cap stocks in the Russell 2000 (^RUT) can be a goldmine for investors looking beyond the usual large-cap names. But with less stability and fewer resources than their bigger counterparts, these companies face steeper challenges in scaling their businesses.
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 deliver strong gains and one that may face some trouble.
One Stock to Sell:
GATX (GATX)
Market Cap: $6.30 billion
Originally founded to ship beer, GATX (NYSE: GATX) provides leasing and management services for railcars and other transportation assets globally.
Why Does GATX Give Us Pause?
- 178.9 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Underwhelming 3.8% return on capital reflects management’s difficulties in finding profitable growth opportunities
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
GATX is trading at $178.48 per share, or 17.1x forward P/E. Check out our free in-depth research report to learn more about why GATX doesn’t pass our bar.
Two Stocks to Buy:
LSI (LYTS)
Market Cap: $726.5 million
Enhancing commercial environments, LSI (NASDAQ: LYTS) provides lighting and display solutions for businesses and retailers.
Why Should You Buy LYTS?
- Annual revenue growth of 21.2% over the past two years was outstanding, reflecting market share gains this cycle
- Performance over the past five years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 30.7% outpaced its revenue gains
- Free cash flow margin expanded by 7 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
At $20.08 per share, LSI trades at 14.9x forward P/E. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
Happen Bank (HAPN)
Market Cap: $1.89 billion
Pioneering peer-to-peer lending in the US before evolving into a digital bank, Happen Bank (NASDAQ: HAPN) operates a marketplace that connects borrowers with lenders, offering personal loans, auto refinancing, and banking services.
What Makes HAPN Stand Out?
- Annual revenue growth of 18.1% over the past five years was outstanding, reflecting market share gains this cycle
- Performance over the past two years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 108% outpaced its revenue gains
- Acceptable return on equity suggests management generated shareholder value by investing in profitable projects
Happen Bank’s stock price of $16.32 implies a valuation ratio of 8.6x forward P/E. Is now the time to initiate a position? Find out in our full 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 Kadant (+214% between June 2020 and June 2025). Find your next big winner with StockStory today.
