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. Keeping that in mind, here is one Russell 2000 stock that could be a breakout winner and two that may struggle to keep up.
Two Stocks to Sell:
Lovesac (LOVE)
Market Cap: $236.3 million
Known for its oversized, premium beanbags, Lovesac (NASDAQ: LOVE) is a specialty furniture brand selling modular furniture.
Why Should You Sell LOVE?
- Lackluster 14.8% annual revenue growth over the last five years indicates the company is losing ground to competitors
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
At $16.14 per share, Lovesac trades at 10x forward EV-to-EBITDA. If you’re considering LOVE for your portfolio, see our FREE research report to learn more.
Acadia Healthcare (ACHC)
Market Cap: $2.62 billion
With a network of over 250 facilities serving patients in 38 states and Puerto Rico, Acadia Healthcare (NASDAQ: ACHC) operates facilities providing mental health and substance use disorder treatment services across the United States.
Why Are We Out on ACHC?
- Disappointing admissions over the past two years indicate demand is soft and that the company may need to revise its strategy
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 12.4% annually
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Acadia Healthcare is trading at $28.35 per share, or 16.3x forward P/E. Read our free research report to see why you should think twice about including ACHC in your portfolio.
One Stock to Watch:
Stock Yards Bank (SYBT)
Market Cap: $2.68 billion
Founded in 1904 in Louisville and named after the city's historic livestock market district, Stock Yards Bancorp (NASDAQ: SYBT) operates a regional bank providing commercial banking, wealth management, and trust services across Kentucky, Indiana, and Ohio.
Why Should SYBT Be on Your Watchlist?
- Annual net interest income growth of 16.6% over the last five years was superb and indicates its market share increased during this cycle
- Net interest margin expanded by 41.7 basis points (100 basis points = 1 percentage point) over the last two years, providing additional flexibility for investments
- Balance sheet strength has increased this cycle as its 9% annual tangible book value per share growth over the last five years was exceptional
Stock Yards Bank’s stock price of $86.27 implies a valuation ratio of 2.1x forward P/B. Is now a good time to buy? Find out in our full 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.
But our AI platform says the party isn’t over. Find out which 9 stocks made the cut this week — FREE. Get Our Top 9 Market-Beating Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.
