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.

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. That said, here is one Russell 2000 stock that could be a breakout winner and two best left off your watchlist.

Two Stocks to Sell:

Barrett (BBSI)

Market Cap: $1.25 billion

Operating as a professional employer organization (PEO) that serves over 8,000 companies with more than 120,000 worksite employees, Barrett Business Services (NASDAQ: BBSI) provides management solutions that help small and mid-sized businesses handle human resources, payroll, workers' compensation, and other administrative functions.

Why Are We Hesitant About BBSI?

1. Smaller revenue base of $1.20 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
2. Free cash flow margin shrank by 10.1 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Barrett is trading at $48.80 per share, or 21.1x forward P/E. To fully understand why you should be careful with BBSI, check out our full research report (it’s free).

NerdWallet (NRDS)

Market Cap: $785.8 million

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 Is NRDS Not Exciting?

1. Negative return on equity shows that some of its growth strategies have backfired

At $10.50 per share, NerdWallet trades at 1.9x forward P/E. Read our free research report to see why you should think twice about including NRDS in your portfolio.

One Stock to Watch:

Abercrombie and Fitch (ANF)

Market Cap: $4.40 billion

Founded as an outdoor and sporting brand, Abercrombie & Fitch (NYSE: ANF) evolved to become a specialty retailer that sells its own brand of fashionable clothing to young adults.

Why Does ANF Stand Out?

1. Brick-and-mortar locations are witnessing elevated demand as their same-store sales growth averaged 13.5% over the past two years
2. Collection of products is difficult to replicate at scale and leads to a best-in-class gross margin of 63.6%
3. Earnings per share grew by 48.1% annually over the last six years, massively outpacing its peers

Abercrombie and Fitch’s stock price of $93.61 implies a valuation ratio of 9.2x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.

Stocks We Like Even More

Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.

Take advantage of the rebound 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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