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.
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 best left off your watchlist.
Two Stocks to Sell:
Designer Brands (DBI)
Market Cap: $140.1 million
Founded in 1969 as a shoe importer and distributor, Designer Brands (NYSE: DBI) is an American discount retailer focused on footwear and accessories.
Why Do We Pass on DBI?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- ROIC of 2.7% reflects management’s challenges in identifying attractive investment opportunities
- High net-debt-to-EBITDA ratio of 11× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Designer Brands is trading at $2.87 per share, or 11.5x forward P/E. Read our free research report to see why you should think twice about including DBI in your portfolio.
Napco (NSSC)
Market Cap: $1.06 billion
Protecting everything from schools to government facilities since 1969, Napco Security Technologies (NASDAQ: NSSC) manufactures electronic security devices, access control systems, and communication services for intrusion and fire alarm systems.
Why Do We Think Twice About NSSC?
- Annual revenue growth of 3.7% over the last two years was below our standards for the business services sector
- Modest revenue base of $181.2 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Projected sales are flat for the next 12 months, implying demand will slow from its two-year trend
At $29.50 per share, Napco trades at 25.3x forward P/E. Check out our free in-depth research report to learn more about why NSSC doesn’t pass our bar.
One Stock to Watch:
German American Bancorp (GABC)
Market Cap: $1.45 billion
Founded in 1910 during a wave of community banking expansion in the Midwest, German American Bancorp (NASDAQ: GABC) is a financial holding company that provides banking, wealth management, and insurance services across southern Indiana and Kentucky.
Why Are We Fans of GABC?
- Annual net interest income growth of 13.3% over the last five years was superb and indicates its market share increased during this cycle
- Demand for the next 12 months is expected to accelerate above its five-year trend as Wall Street forecasts robust net interest income growth of 26.9%
- Capital generation for the next 12 months is expected to accelerate above its two-year trend as Wall Street forecasts robust tangible book value per share growth of 16.7%
German American Bancorp’s stock price of $38.62 implies a valuation ratio of 1.3x forward P/B. Is now the right time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
When Trump unveiled his aggressive tariff plan in April 2024, markets tanked as investors feared a full-blown trade war. But those who panicked and sold missed the subsequent rebound that’s already erased most losses.
Don’t let fear keep you from great opportunities and take a look at Top 9 Market-Beating Stocks. 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
StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.
