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 is one Russell 2000 stock that could be the next big thing and two that may face some trouble.
Two Stocks to Sell:
The Honest Company (HNST)
Market Cap: $490.6 million
Co-founded by actress Jessica Alba, The Honest Company (NASDAQ: HNST) sells diapers and wipes, skin care products, and household cleaning products.
Why Do We Think Twice About HNST?
- Modest revenue base of $389.4 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- 6.6 percentage point decline in its free cash flow margin over the last year reflects the company’s increased investments to defend its market position
- Negative returns on capital show management lost money while trying to expand the business
The Honest Company’s stock price of $4.51 implies a valuation ratio of 16.4x forward EV-to-EBITDA. To fully understand why you should be careful with HNST, check out our full research report (it’s free).
CRA (CRAI)
Market Cap: $1.29 billion
Often retained for high-stakes matters with multibillion-dollar implications, CRA International (NASDAQ: CRAI) provides economic, financial, and management consulting services to corporations, law firms, and government agencies for litigation, regulatory proceedings, and business strategy.
Why Is CRAI Not Exciting?
- Smaller revenue base of $697.5 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Free cash flow margin shrank by 11 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
CRA is trading at $189.49 per share, or 23.6x forward P/E. Check out our free in-depth research report to learn more about why CRAI doesn’t pass our bar.
One Stock to Buy:
Bloom Energy (BE)
Market Cap: $5.88 billion
Working in stealth mode for eight years, Bloom Energy (NYSE: BE) designs, manufactures, and markets solid oxide fuel cell systems for on-site power generation.
Why Are We Backing BE?
- Annual revenue growth of 14.5% over the past five years was outstanding, reflecting market share gains this cycle
- Additional sales over the last two years increased its profitability as the 68.2% annual growth in its earnings per share outpaced its revenue
- Free cash flow turned positive over the last five years, showing the company has crossed a key inflection point
At $25.35 per share, Bloom Energy trades at 56.5x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our 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 Comfort Systems (+782% 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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