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.
The high-risk, high-reward nature of the Russell 2000 makes stock selection critical, and we’re here to guide you toward the right ones. That said, here are two Russell 2000 stocks that could be the next big thing and one that may face some trouble.
One Stock to Sell:
First Advantage (FA)
Market Cap: $2.65 billion
Processing over 200 million screens annually across more than 200 countries and territories, First Advantage (NASDAQ: FA) provides employment background screening, identity verification, and compliance solutions to help companies manage hiring risks.
Why Are We Cautious About FA?
- Earnings per share lagged its peers over the last four years as they only grew by 1.6% annually
- Free cash flow margin shrank by 7.9 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its decreasing returns suggest its historical profit centers are aging
At $15.12 per share, First Advantage trades at 12.3x forward P/E. Dive into our free research report to see why there are better opportunities than FA.
Two Stocks to Watch:
Arlo Technologies (ARLO)
Market Cap: $1.43 billion
Originally spun off from networking equipment maker Netgear in 2018, Arlo Technologies (NYSE: ARLO) provides cloud-based smart security devices and subscription services that help consumers and businesses monitor and protect their homes, properties, and loved ones.
Why Could ARLO Be a Winner?
- Annual revenue growth of 8.4% over the last five years beat the sector average and underscores the unique value of its offerings
- Incremental sales over the last two years have been highly profitable as its earnings per share increased by 54% annually, topping its revenue gains
- Free cash flow margin increased by 15.5 percentage points over the last five years, giving the company more capital to invest or return to shareholders
Arlo Technologies is trading at $13.06 per share, or 17x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
Cohen & Steers (CNS)
Market Cap: $3.69 billion
Founded in 1986 as a pioneer in real estate investment trusts (REITs), Cohen & Steers (NYSE: CNS) is an investment manager specializing in real estate securities, infrastructure, real assets, and preferred securities for institutional and individual investors.
Why Does CNS Catch Our Eye?
- Balance sheet strength has increased this cycle as its 20.7% annual tangible book value per share growth over the last two years was exceptional
- Stellar return on equity showcases management’s ability to surface highly profitable business ventures
Cohen & Steers’s stock price of $71.84 implies a valuation ratio of 20.3x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
Stocks We Like Even More
ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren't just high-quality businesses. Something is happening with them right now. Elite fundamentals meeting near-term momentum - both boxes checked at the same time.
Find out which stocks our AI platform is flagging this week. See this week's Strong Momentum stocks - FREE. Get Our Strong Momentum Stocks for Free HERE.
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.
