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 that may struggle to keep up.

Two Stocks to Sell:

The Real Brokerage (REAX)

Market Cap: $878.4 million

Founded in Toronto, Canada in 2014, The Real Brokerage (NASDAQ: REAX) is a technology-driven real estate brokerage firm combining a tech-centric model with an agent-centric philosophy.

Why Do We Pass on REAX?

1. Poor expense management has led to operating margin losses
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 9% annually
3. Poor free cash flow margin of 3.3% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends

The Real Brokerage is trading at $4.27 per share, or 16.4x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than REAX.

Connection (CNXN)

Market Cap: $1.71 billion

Starting as a small computer products seller in 1982 and evolving into a Fortune 1000 company, Connection (NASDAQ: CNXN) is a technology solutions provider that helps businesses and government agencies design, purchase, implement, and manage their IT infrastructure and systems.

Why Should You Dump CNXN?

1. Flat sales over the last five years suggest it must find different ways to grow during this cycle
2. Earnings per share were flat over the last five years and fell short of the peer group average
3. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital

Connection’s stock price of $67.26 implies a valuation ratio of 19.3x forward P/E. Check out our free in-depth research report to learn more about why CNXN doesn’t pass our bar.

One Stock to Buy:

Energy Recovery (ERII)

Market Cap: $729.2 million

Having saved far more than a trillion gallons of water, Energy Recovery (NASDAQ: ERII) provides energy recovery devices to the water treatment, oil and gas, and chemical processing sectors.

Why Is ERII a Good Business?

1. Superior product capabilities and pricing power lead to a best-in-class gross margin of 69.4%
2. Earnings growth has massively outpaced its peers over the last two years as its EPS has compounded at 71.9% annually
3. Stellar returns on capital showcase management’s ability to surface highly profitable business ventures

At $12.97 per share, Energy Recovery trades at 16.4x forward P/E. 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 5 Strong Momentum 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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