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.

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 that may struggle to keep up.

Two Stocks to Sell:

FormFactor (FORM)

Market Cap: $2.65 billion

With customers across the foundry and fabless markets, FormFactor (NASDAQ: FORM) is a US-based provider of test and measurement technologies for semiconductors.

Why Do We Avoid FORM?

1. Annual revenue growth of 4.4% over the last five years was below our standards for the semiconductor sector
2. Estimated sales growth of 2.4% for the next 12 months is soft and implies weaker demand
3. Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 6.1 percentage points

FormFactor’s stock price of $33.70 implies a valuation ratio of 23.3x forward P/E. Check out our free in-depth research report to learn more about why FORM doesn’t pass our bar.

United Community Banks (UCB)

Market Cap: $3.54 billion

Starting as a small community bank in 1950 and expanding through strategic acquisitions across the Southeast, United Community Banks (NYSE: UCB) is a regional bank holding company that provides financial services including loans, deposits, wealth management, and merchant services across the southeastern United States.

Why Does UCB Worry Us?

1. Muted 1.8% annual revenue growth over the last two years shows its demand lagged behind its bank peers
2. Net interest margin of 3.3% is well below other banks, signaling its loans aren’t very profitable
3. Annual earnings per share growth of 1.1% underperformed its revenue over the last five years, showing its incremental sales were less profitable

United Community Banks is trading at $29.11 per share, or 1x forward P/B. Dive into our free research report to see why there are better opportunities than UCB.

One Stock to Watch:

Limbach (LMB)

Market Cap: $1.65 billion

Established in 1901, Limbach (NASDAQ: LMB) provides integrated building systems solutions, including mechanical, electrical, and plumbing services.

Why Does LMB Catch Our Eye?

1. Operating margin improved by 5.3 percentage points over the last five years as it eliminated redundant costs
2. Additional sales over the last two years increased its profitability as the 53.3% annual growth in its earnings per share outpaced its revenue
3. Industry-leading 22.9% return on capital demonstrates management’s skill in finding high-return investments, and its returns are growing as it capitalizes on even better market opportunities

At $141.83 per share, Limbach trades at 34.3x forward P/E. Is now a good time to buy? See for yourself in our full research report, it’s free.

Stocks We Like Even More

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our 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.