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. Keeping that in mind, 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:
Transcat (TRNS)
Market Cap: $714.7 million
Serving the pharmaceutical, industrial manufacturing, energy, and chemical process industries, Transcat (NASDAQ: TRNS) provides measurement instruments and supplies.
Why Are We Wary of TRNS?
- Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 2.8 percentage points
- Earnings per share fell by 6.8% annually over the last two years while its revenue grew, partly because it diluted shareholders
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Transcat’s stock price of $76.64 implies a valuation ratio of 35.8x forward P/E. To fully understand why you should be careful with TRNS, check out our full research report (it’s free).
Allient (ALNT)
Market Cap: $1.14 billion
Founded in 1962, Allient (NASDAQ: ALNT) develops and manufactures precision and specialty-controlled motion components and systems.
Why Are We Hesitant About ALNT?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 3.2% annually over the last two years
- Issuance of new shares over the last two years caused its earnings per share to fall by 5.7% annually, even worse than its revenue declines
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its falling returns suggest its earlier profit pools are drying up
Allient is trading at $67.12 per share, or 27.6x forward P/E. Dive into our free research report to see why there are better opportunities than ALNT.
One Stock to Buy:
CECO Environmental (CECO)
Market Cap: $2.79 billion
With roots dating back to 1869 and a focus on creating cleaner industrial operations, CECO Environmental (NASDAQ: CECO) provides technology and expertise that helps industrial companies reduce emissions, treat water, and improve energy efficiency across various sectors.
Why Will CECO Outperform?
- Annual revenue growth of 19% over the past two years was outstanding, reflecting market share gains this cycle
- Adjusted operating margin improvement of 11.4 percentage points over the last five years demonstrates its ability to scale efficiently
- Returns on capital are increasing as management’s prior bets are starting to bear fruit
At $78.43 per share, CECO Environmental trades at 60.7x 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’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in 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 244% over the last five years (as of June 30, 2025).
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