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.

The high-risk, high-reward nature of the Russell 2000 makes stock selection critical, and we’re here to guide you toward the right ones. 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:

Boot Barn (BOOT)

Market Cap: $5.00 billion

With a strong store presence in Texas, California, Florida, and Oklahoma, Boot Barn (NYSE: BOOT) is a western-inspired apparel and footwear retailer.

Why Are We Wary of BOOT?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
2. Modest revenue base of $1.91 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
3. 7.1 percentage point decline in its free cash flow margin over the last year reflects the company’s increased investments to defend its market position

Boot Barn is trading at $163.48 per share, or 26.3x forward P/E. To fully understand why you should be careful with BOOT, check out our full research report (it’s free).

Hilltop Holdings (HTH)

Market Cap: $1.94 billion

Transformed from a residential communities business to a financial services powerhouse in 2007, Hilltop Holdings (NYSE: HTH) is a Texas-based financial holding company that provides banking, broker-dealer, and mortgage origination services.

Why Is HTH Risky?

1. Net interest income was flat over the last four years, indicating it’s failed to expand this cycle
2. Projected 32 percentage point efficiency ratio increase over the next year signals its day-to-day expenses will rise
3. Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable

At $30.26 per share, Hilltop Holdings trades at 0.9x forward P/B. If you’re considering HTH for your portfolio, see our FREE research report to learn more.

One Stock to Buy:

Cal-Maine (CALM)

Market Cap: $5.04 billion

Known for brands such as Egg-Land’s Best and Land O’ Lakes, Cal-Maine (NASDAQ: CALM) produces, packages, and distributes eggs.

Why Are We Backing CALM?

1. Annual revenue growth of 35.3% over the past three years was outstanding, reflecting market share gains
2. Additional sales over the last three years increased its profitability as the 280% annual growth in its earnings per share outpaced its revenue
3. Strong free cash flow margin of 17.9% enables it to reinvest or return capital consistently, and its recently improved profitability means it has even more resources to invest or distribute

Cal-Maine’s stock price of $103.75 implies a valuation ratio of 9.9x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.

High-Quality Stocks for All Market Conditions

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

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