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. Keeping that in mind, here is one Russell 2000 stock that could deliver strong gains and two best left off your watchlist.

Two Stocks to Sell:

Genesco (GCO)

Market Cap: $220.5 million

Spanning a broad range of styles, brands, and prices, Genesco (NYSE: GCO) sells footwear, apparel, and accessories through multiple brands and banners.

Why Is GCO Risky?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and in-store experience
2. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

Genesco’s stock price of $20.46 implies a valuation ratio of 12.9x forward P/E. If you’re considering GCO for your portfolio, see our FREE research report to learn more.

SoundHound AI (SOUN)

Market Cap: $3.99 billion

Founded in 2005, SoundHound AI (NASDAQ: SOUN) develops independent voice artificial intelligence solutions that enable businesses across various industries to offer customized conversational experiences to consumers.

Why Does SOUN Give Us Pause?

1. Gross margin of 44.1% is way below its competitors, leaving less money to invest in areas like marketing and R&D
2. Operating margin dropped by 39 percentage points over the last year as the company focused on expansion rather than profitability
3. Negative free cash flow raises questions about the return timeline for its investments

At $9.96 per share, SoundHound AI trades at 25x forward price-to-sales. Check out our free in-depth research report to learn more about why SOUN doesn’t pass our bar.

One Stock to Buy:

NMI Holdings (NMIH)

Market Cap: $3.3 billion

Founded in the aftermath of the 2008 housing crisis to bring new capacity to the mortgage insurance market, NMI Holdings (NASDAQ: NMIH) provides mortgage insurance that protects lenders against losses when homebuyers default on their mortgage loans.

Why Will NMIH Outperform?

1. Annual net premiums earned growth of 9.6% over the last two years beat the sector average and underscores the value of its insurance products
2. Underwriting operating profits increased over the last four years as the company gained some leverage on its fixed costs and became more efficient
3. Annual book value per share growth of 15.9% over the past five years was outstanding, reflecting strong capital accumulation this cycle

NMI Holdings is trading at $42.24 per share, or 1.3x 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

Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.

While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like 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 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