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 is one Russell 2000 stock that could be the next big thing and two best left off your watchlist.
Two stocks to sell:
Verra Mobility (VRRM)
Market cap: $377 million
Aiming to wrap technology and data around a historically manual and paper-based industry, Verra Mobility (NASDAQ: VRRM) is a leading provider of smart mobility technology to address tolls and violations, title and registration services, as well as safety and traffic enforcement.
Why Is VRRM Not Exciting?
- Muted 7.5% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- Efficiency has decreased over the last five years as its operating margin fell by 9.3 percentage points
- Free cash flow margin dropped by 9.4 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Verra Mobility’s stock price of $2.49 implies a valuation ratio of 3.5x forward P/E. Read our free research report to see why you should think twice about including VRRM in your portfolio.
Pediatrix Medical Group (MD)
Market cap: $2.50 billion
With a network of approximately 2,620 affiliated physicians caring for some of the most vulnerable patients, Pediatrix Medical Group (NYSE: MD) provides specialized physician services focused on neonatal, maternal-fetal, pediatric cardiology and other pediatric subspecialty care across 37 states.
Why Are We Cautious About MD?
- Disappointing comparable store sales over the past two years show customers aren’t responding well to its offerings and value proposition
- Subscale operations are evident in its revenue base of $1.96 billion, meaning it has fewer distribution channels than its larger rivals
- Low returns on capital reflect management’s struggle to allocate funds effectively
Pediatrix Medical Group is trading at $31.31 per share, or 12.7x forward P/E. If you’re considering MD for your portfolio, see our FREE research report to learn more.
One stock to watch:
Talos Energy (TALO)
Market cap: $2.59 billion
Operating its own deepwater production facilities with names like Tarantula, Pompano, and Brutus, Talos Energy (NYSE: TALO) explores for and produces oil and natural gas from offshore wells in the Gulf of Mexico and offshore Mexico.
Why Are We Fans of TALO?
- Annual revenue growth of 20.7% over the last nine years was superb and indicates its market share increased during this cycle
- Attractive asset base leads to wonderful unit economics and a best-in-class gross margin of 72.8%
- Strong free cash flow margin of 20% enables it to reinvest or return capital consistently
At $15.62 per share, Talos Energy trades at 9.2x 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 Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.
