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. That said, here is one Russell 2000 stock that could be the next big thing and two that may struggle to keep up.
Two Stocks to Sell:
Resideo (REZI)
Market Cap: $4.69 billion
Resideo Technologies, Inc. (NYSE: REZI) is a manufacturer and distributor of technology-driven products and solutions for home comfort, energy management, water management, and safety and security.
Why Are We Hesitant About REZI?
- Annual revenue growth of 7.5% over the last five years was below our standards for the industrials sector
- Free cash flow margin dropped by 20.7 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Waning returns on capital imply its previous profit engines are losing steam
At $30.97 per share, Resideo trades at 0.6x forward price-to-sales. If you’re considering REZI for your portfolio, see our FREE research report to learn more.
Transocean (RIG)
Market Cap: $6.55 billion
Operating one of the world's most capable fleets of ultra-deepwater drillships and harsh environment rigs, Transocean (NYSE: RIG) operates drilling rigs that energy companies rent to drill oil and gas wells in deep ocean waters.
Why Do We Avoid RIG?
- Annual sales declines of 3.8% for the past ten years show its products and services struggled to connect with the market during this cycle
- High extraction costs and unfavorable asset economics are reflected in its low gross margin of 37.6%
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 4.7% for the last five years
Transocean is trading at $5.88 per share, or 32.2x forward P/E. Dive into our free research report to see why there are better opportunities than RIG.
One Stock to Watch:
Onterris (ONT)
Market Cap: $613.3 million
Founded to protect a tree-lined two-lane road, Onterris (NYSE: ONT) provides air quality monitoring, environmental laboratory testing, compliance, and environmental consulting services.
Why Are We Positive on ONT?
- Annual revenue growth of 15.4% over the past five years was outstanding, reflecting market share gains this cycle
- Earnings per share have massively outperformed its peers over the last two years, increasing by 44.4% annually
- Free cash flow margin grew by 3.8 percentage points over the last five years, giving the company more chips to play with
Onterris’s stock price of $16.29 implies a valuation ratio of 0.7x trailing 12-month price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.
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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-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.
