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 are two Russell 2000 stocks that could be the next breakout winners and one that may face some trouble.
One Stock to Sell:
First Advantage (FA)
Market Cap: $2.43 billion
Processing approximately 100 million background checks annually across more than 200 countries and territories, First Advantage (NASDAQ: FA) provides employment background screening, identity verification, and compliance solutions to help companies manage hiring risks.
Why Does FA Fall Short?
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 4.6% annually while its revenue grew
- Free cash flow margin dropped by 15.1 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Low returns on capital reflect management’s struggle to allocate funds effectively, and its falling returns suggest its earlier profit pools are drying up
First Advantage is trading at $13.97 per share, or 12x forward P/E. Check out our free in-depth research report to learn more about why FA doesn’t pass our bar.
Two Stocks to Watch:
Stride (LRN)
Market Cap: $2.71 billion
Formerly known as K12, Stride (NYSE: LRN) is an education technology company providing education solutions through digital platforms.
Why Is LRN a Top Pick?
- Increase in enrollments shows customers are eagerly embracing its offerings
- Free cash flow margin grew by 7.4 percentage points over the last five years, giving the company more chips to play with
- Returns on capital are growing as management capitalizes on its market opportunities
At $62.95 per share, Stride trades at 7.7x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
NerdWallet (NRDS)
Market Cap: $1.12 billion
Born from founder Tim Chen's frustration with the lack of transparent credit card information when helping his sister in 2009, NerdWallet (NASDAQ: NRDS) is a digital platform that provides financial guidance to help consumers and small businesses make smarter decisions about credit cards, loans, insurance, and other financial products.
Why Could NRDS Be a Winner?
- Annual revenue growth of 26.5% over the last five years was superb and indicates its market share increased during this cycle
- Additional sales over the last two years increased its profitability as the 266% annual growth in its earnings per share outpaced its revenue
NerdWallet’s stock price of $15.42 implies a valuation ratio of 10.7x forward P/E. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free for active Edge members .
Stocks We Like Even More
Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.
The names generating the next wave of massive growth are right here in our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% 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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