The Russell 2000 (^RUT) is home to many small-cap stocks, offering investors the chance to uncover hidden gems before the broader market catches on. However, these companies often come with higher volatility and risk, as their smaller size makes them more vulnerable to economic downturns.
Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. Keeping that in mind, here are two Russell 2000 stocks that could be the next breakout winners and one best left off your watchlist.
One Stock to Sell:
Kratos (KTOS)
Market Cap: $16.24 billion
Established with a commitment to supporting national security, Kratos (NASDAQ: KTOS) is a provider of advanced engineering, technology, and security solutions tailored for critical national security applications.
Why Are We Wary of KTOS?
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 9 percentage points
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its decreasing returns suggest its historical profit centers are aging
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Kratos is trading at $95.82 per share, or 146x forward P/E. Dive into our free research report to see why there are better opportunities than KTOS.
Two Stocks to Watch:
Upstart (UPST)
Market Cap: $3.86 billion
Using over 2,500 data variables and trained on nearly 82 million repayment events, Upstart (NASDAQ: UPST) is an AI-powered lending platform that uses machine learning to help banks and credit unions more accurately assess borrower risk for personal loans, auto loans, and home equity lines of credit.
Why Are We Fans of UPST?
- Market share has increased as its 36.3% annual revenue growth over the last two years was exceptional
- Revenue outlook for the upcoming 12 months is outstanding and shows it’s on track to gain market share
- Operating margin expanded by 40.6 percentage points over the last year as it scaled and became more efficient
At $39.85 per share, Upstart trades at 3.5x forward price-to-sales. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
Dave (DAVE)
Market Cap: $2.36 billion
Named after the biblical David fighting financial Goliaths, Dave (NASDAQ: DAVE) is a digital financial services platform that helps Americans living paycheck to paycheck with cash advances, banking services, and tools to improve their financial health.
Why Does DAVE Stand Out?
- Annual revenue growth of 41.4% over the past two years was outstanding, reflecting market share gains this cycle
- Incremental sales over the last two years have been highly profitable as its earnings per share increased by 137% annually, topping its revenue gains
Dave’s stock price of $175.01 implies a valuation ratio of 12x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.
Don’t wait for the next volatility shock. Check out our Top 6 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).
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.
