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 deliver strong gains and two that may struggle to keep up.
Two Stocks to Sell:
RE/MAX (RMAX)
Market Cap: $190.5 million
Short for Real Estate Maximums, RE/MAX (NYSE: RMAX) operates a real estate franchise network spanning over 100 countries and territories.
Why Are We Out on RMAX?
- Demand for its offerings was relatively low as its number of agents has underwhelmed
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 9% annually while its revenue grew
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 11.7% for the last two years
RE/MAX’s stock price of $8.97 implies a valuation ratio of 0.6x forward price-to-sales. To fully understand why you should be careful with RMAX, check out our full research report (it’s free).
Enact Holdings (ACT)
Market Cap: $5.72 billion
Playing a critical role in helping first-time homebuyers access the housing market, Enact Holdings (NASDAQ: ACT) provides private mortgage insurance that enables lenders to offer home loans with lower down payments while protecting against borrower defaults.
Why Do We Think ACT Will Underperform?
- Net premiums earned remained stagnant over the last five years, indicating expansion challenges this cycle
- Sales are projected to remain flat over the next 12 months as demand decelerates from its two-year trend
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 6.7% annually
At $40.93 per share, Enact Holdings trades at 1x forward P/B. If you’re considering ACT for your portfolio, see our FREE research report to learn more.
One Stock to Watch:
Cactus (WHD)
Market Cap: $4.09 billion
Named for the spiky wellhead equipment that reminded founders of desert cacti, Cactus (NYSE: WHD) manufactures wellheads, valves, and spoolable pipes used in drilling and producing oil and gas wells.
Why Are We Positive on WHD?
- Annual revenue growth of 23.2% over the past nine years was outstanding, reflecting market share gains this cycle
- EBITDA margin improvement of 2.3 percentage points over the last five years demonstrates its ability to scale efficiently
- Strong free cash flow margin of 21.9% enables it to reinvest or return capital consistently
Cactus is trading at $58.87 per share, or 2.5x forward price-to-sales. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don’t just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
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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 Kadant (+351% five-year return). Find your next big winner with StockStory today.
