The Russell 2000 (^RUT) is packed with potential breakout stocks, thanks to its focus on smaller companies with high growth potential. However, smaller size also means these businesses often lack the resilience and financial flexibility of large-cap firms, making careful selection crucial.
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 a breakout winner and two that may struggle to keep up.
Two Stocks to Sell:
Krispy Kreme (DNUT)
Market Cap: $656.1 million
Famous for its Original Glazed doughnuts and parent company of Insomnia Cookies, Krispy Kreme (NASDAQ: DNUT) is one of the most beloved and well-known fast-food chains in the world.
Why Do We Pass on DNUT?
- Earnings per share have contracted by 28.6% annually over the last four years, a headwind for returns as stock prices often echo long-term EPS performance
- Negative free cash flow raises questions about the return timeline for its investments
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Krispy Kreme is trading at $3.83 per share, or 5.2x forward EV-to-EBITDA. If you’re considering DNUT for your portfolio, see our FREE research report to learn more.
Karat Packaging (KRT)
Market Cap: $433.3 million
Founded as Lollicup, Karat Packaging (NASDAQ: KRT) distributes and manufactures environmentally-friendly disposable foodservice packaging solutions.
Why Does KRT Give Us Pause?
- 6.1% annual revenue growth over the last two years was slower than its industrials peers
- Issuance of new shares over the last two years caused its earnings per share to fall by 9.4% annually while its revenue grew
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 5.5% for the last five years
Karat Packaging’s stock price of $21.54 implies a valuation ratio of 13.7x forward P/E. Check out our free in-depth research report to learn more about why KRT doesn’t pass our bar.
One Stock to Watch:
Limbach (LMB)
Market Cap: $798.5 million
Established in 1901, Limbach (NASDAQ: LMB) provides integrated building systems solutions, including mechanical, electrical, and plumbing services.
Why Are We Fans of LMB?
- Operating margin increased by 6 percentage points over the last five years as it refined its cost structure
- Incremental sales over the last two years have been highly profitable as its earnings per share increased by 42.5% annually, topping its revenue gains
- Free cash flow margin expanded by 8 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
At $68.63 per share, Limbach trades at 16.8x 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.
Stocks We Like Even More
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
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-micro-cap company Kadant (+351% 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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