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. Keeping that in mind, here is one Russell 2000 stock that could be a breakout winner and two best left off your watchlist.

Two Stocks to Sell:

AerSale (ASLE)

Market Cap: $286.3 million

Providing a one-stop shop that integrates multiple services and product offerings, AerSale (NASDAQ: ASLE) delivers full-service support to mid-life commercial aircraft.

Why Do We Avoid ASLE?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 2% annually over the last five years
2. Cash burn makes us question whether it can achieve sustainable long-term growth
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

At $6.11 per share, AerSale trades at 13x forward P/E. Read our free research report to see why you should think twice about including ASLE in your portfolio.

ePlus (PLUS)

Market Cap: $1.73 billion

Starting as a financing company in 1990 before evolving into a full-service technology provider, ePlus (NASDAQ: PLUS) provides comprehensive IT solutions, professional services, and financing options to help organizations optimize their technology infrastructure and supply chain processes.

Why Does PLUS Worry Us?

1. Muted 2.4% annual revenue growth over the last two years shows its demand lagged behind its business services peers
2. Earnings per share have dipped by 2.1% annually over the past two years, which is concerning because stock prices follow EPS over the long term
3. Low free cash flow margin of 4.4% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders

ePlus’s stock price of $67.59 implies a valuation ratio of 12.4x forward P/E. Dive into our free research report to see why there are better opportunities than PLUS.

One Stock to Watch:

CECO Environmental (CECO)

Market Cap: $905.3 million

With roots dating back to 1869 and a focus on creating cleaner industrial operations, CECO Environmental (NASDAQ: CECO) provides technology and expertise that helps industrial companies reduce emissions, treat water, and improve energy efficiency across various sectors.

Why Do We Like CECO?

1. Market share has increased this cycle as its 17.2% annual revenue growth over the last two years was exceptional
2. Projected revenue growth of 22.6% for the next 12 months is above its two-year trend, pointing to accelerating demand
3. Adjusted operating margin improvement of 10.8 percentage points over the last five years demonstrates its ability to scale efficiently

CECO Environmental is trading at $25.67 per share, or 19.9x forward P/E. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.

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