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.
Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. Keeping that in mind, here are two Russell 2000 stocks that could be the next big thing and one that may face some trouble.
One Stock to Sell:
Gray Television (GTN)
Market Cap: $477.4 million
Specializing in local media coverage, Gray Television (NYSE: GTN) is a broadcast company supplying digital media to various markets in the United States.
Why Do We Steer Clear of GTN?
- Sales were flat over the last two years, indicating it’s failed to expand its business
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 5.7 percentage points
- High net-debt-to-EBITDA ratio of 5× increases the risk of forced asset sales or dilutive financing if operational performance weakens
At $4.57 per share, Gray Television trades at 0.6x forward EV-to-EBITDA. If you’re considering GTN for your portfolio, see our FREE research report to learn more.
Two Stocks to Watch:
CSW (CSW)
Market Cap: $4.18 billion
With over two centuries of combined operations manufacturing and supplying, CSW (NASDAQ: CSW) offers special chemicals, coatings, sealants, and lubricants for various industries.
Why Is CSW a Top Pick?
- Annual revenue growth of 20.6% over the last five years was superb and indicates its market share increased during this cycle
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 22.2% over the last five years outstripped its revenue performance
- Robust free cash flow margin of 15.6% gives it many options for capital deployment, and its improved cash conversion implies it’s becoming a less capital-intensive business
CSW’s stock price of $250.42 implies a valuation ratio of 22.7x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free for active Edge members.
PennyMac Financial Services (PFSI)
Market Cap: $6.53 billion
Founded during the 2008 financial crisis to help address the mortgage market meltdown, PennyMac Financial Services (NYSE: PFSI) is a specialty financial services company that originates, services, and manages investments related to residential mortgage loans in the United States.
Why Are We Fans of PFSI?
- Additional sales over the last two years increased its profitability as the 56.3% annual growth in its earnings per share outpaced its revenue
- Balance sheet strength has increased this cycle as its 15% annual tangible book value per share growth over the last five years was exceptional
- Industry-leading 15.9% return on equity demonstrates management’s skill in finding high-return investments
PennyMac Financial Services is trading at $126 per share, or 1.5x forward P/B. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
Stocks We Like Even More
Fresh US-China trade tensions just tanked stocks—but strong bank earnings are fueling a sharp rebound. Don’t miss the bounce.
Don’t let fear keep you from great opportunities and take a look at Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 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 for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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