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 that may face some trouble.

Two Stocks to Sell:

Central Garden & Pet (CENT)

Market Cap: $2.10 billion

Enhancing the lives of both pets and homeowners, Central Garden & Pet (NASDAQ: CENT) is a leading producer and distributor of essential products for pet care, lawn and garden maintenance, and pest control.

Why Do We Steer Clear of CENT?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
2. Estimated sales for the next 12 months are flat and imply a softer demand environment
3. Low returns on capital reflect management’s struggle to allocate funds effectively, and its shrinking returns suggest its past profit sources are losing steam

At $36.45 per share, Central Garden & Pet trades at 16x forward P/E. If you’re considering CENT for your portfolio, see our FREE research report to learn more.

Array (ARRY)

Market Cap: $1.17 billion

Going public in October 2020, Array (NASDAQ: ARRY) is a global manufacturer of ground-mounting tracking systems for utility and distributed generation solar energy projects.

Why Do We Avoid ARRY?

1. Flat unit sales over the past two years suggest it might have to lower prices to accelerate growth
2. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

Array is trading at $7.66 per share, or 11.8x forward P/E. Check out our free in-depth research report to learn more about why ARRY doesn’t pass our bar.

One Stock to Buy:

Palomar Holdings (PLMR)

Market Cap: $3.71 billion

Founded in 2013 to fill gaps in catastrophe insurance markets, Palomar Holdings (NASDAQ: PLMR) is a specialty insurance provider that offers property and casualty insurance products in underserved markets, with a focus on earthquake coverage.

Why Is PLMR a Top Pick?

1. Annual net premiums earned growth of 32.3% over the last two years was superb and indicates its market share increased during this cycle
2. Annual book value per share growth of 35% over the past two years was outstanding, reflecting strong capital accumulation this cycle
3. Notable projected book value per share growth of 24.6% for the next 12 months hints at strong capital generation

Palomar Holdings’s stock price of $138.66 implies a valuation ratio of 4.1x forward P/B. Is now the right time to buy? See for yourself in our comprehensive 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 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-small-cap company Exlservice (+354% 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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