Small-cap stocks in the Russell 2000 (^RUT) can be a goldmine for investors looking beyond the usual large-cap names. But with less stability and fewer resources than their bigger counterparts, these companies face steeper challenges in scaling their businesses.
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 that may face some trouble.
Two Stocks to Sell:
America's Car-Mart (CRMT)
Market Cap: $386.6 million
With a strong presence in the Southern and Central US, America’s Car-Mart (NASDAQ: CRMT) sells used cars to budget-conscious consumers.
Why Are We Out on CRMT?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Gross margin of 21.1% is below its competitors, leaving less money for marketing and promotions
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
America's Car-Mart’s stock price of $46.71 implies a valuation ratio of 12x forward P/E. Read our free research report to see why you should think twice about including CRMT in your portfolio.
Denny's (DENN)
Market Cap: $230.7 million
Open around the clock, Denny’s (NASDAQ: DENN) is a chain of diner restaurants serving breakfast and traditional American fare.
Why Do We Avoid DENN?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its menu offerings and dining experience
- 8.7 percentage point decline in its free cash flow margin over the last year reflects the company’s increased investments to defend its market position
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $4.45 per share, Denny's trades at 8.8x forward P/E. Check out our free in-depth research report to learn more about why DENN doesn’t pass our bar.
One Stock to Buy:
Merchants Bancorp (MBIN)
Market Cap: $1.51 billion
With a strategic focus on low-risk, government-backed lending programs, Merchants Bancorp (NASDAQCM:MBIN) is an Indiana-based bank holding company specializing in multi-family mortgage banking, mortgage warehousing, and traditional banking services.
Why Do We Love MBIN?
- Impressive 22.9% annual net interest income growth over the last five years indicates it’s winning market share this cycle
- Earnings per share grew by 13.9% annually over the last five years, massively outpacing its peers
- Impressive 21.1% annual tangible book value per share growth over the last two years indicates it’s building equity value this cycle
Merchants Bancorp is trading at $32.97 per share, or 0.8x forward P/B. Is now a good time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound by checking out our Top 6 Stocks for this week. 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-micro-cap company Tecnoglass (+1,754% 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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