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.
Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. That said, here are two Russell 2000 stocks that could be the next breakout winners and one that may face some trouble.
One Stock to Sell:
Solaris Energy Infrastructure (SEI)
Market Cap: $4.59 billion
After acquiring Mobile Energy Rentals in 2024 to enter the distributed power market, Solaris Energy Infrastructure (NYSE: SEI) leases mobile power equipment and provides logistics services for oil and gas well completion.
Why Are We Cautious About SEI?
- Modest revenue base of $692.1 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Gross margin of 40.6% reflects its high production costs and unfavorable asset base
- Cash-burning history makes us doubt the long-term viability of its business model
At $79.41 per share, Solaris Energy Infrastructure trades at 59.3x forward P/E. Check out our free in-depth research report to learn more about why SEI doesn’t pass our bar.
Two Stocks to Watch:
LegalZoom (LZ)
Market Cap: $1.03 billion
Founded by famous lawyer Robert Shapiro, LegalZoom (NASDAQ: LZ) offers online legal services and documentation assistance for individuals and businesses.
Why Does LZ Stand Out?
- Subscription Units have increased by an average of 11.6% annually, giving it the potential for margin-accretive growth if it can develop valuable complementary products and features
- Grip over its ecosystem is highlighted by its ability to grow engagement while increasing the average revenue per user by 35.2% annually
- Share buybacks catapulted its annual earnings per share growth to 31.2%, which outperformed its revenue gains over the last three years
LegalZoom is trading at $5.84 per share, or 4.3x forward EV/EBITDA. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
Napco (NSSC)
Market Cap: $1.29 billion
Protecting everything from schools to government facilities since 1969, Napco Security Technologies (NASDAQ: NSSC) manufactures electronic security devices, access control systems, and communication services for intrusion and fire alarm systems.
Why Do We Love NSSC?
- Annual revenue growth of 14.2% over the last five years was superb and indicates its market share increased during this cycle
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its growing cash flow gives it even more resources to deploy
- Returns on capital are climbing as management makes more lucrative bets
Napco’s stock price of $36.12 implies a valuation ratio of 23.9x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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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.
