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.
The high-risk, high-reward nature of the Russell 2000 makes stock selection critical, and we’re here to guide you toward the right ones. Keeping that in mind, here are two Russell 2000 stocks that could deliver strong gains and one that may face some trouble.
One Stock to Sell:
Kratos (KTOS)
Market Cap: $12.54 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 Does KTOS Worry Us?
- 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 falling returns suggest its earlier profit pools are drying up
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $73.85 per share, Kratos trades at 107.5x forward P/E. To fully understand why you should be careful with KTOS, check out our full research report (it’s free for active Edge members).
Two Stocks to Watch:
Gorman-Rupp (GRC)
Market Cap: $1.33 billion
Powering fluid dynamics since 1934, Gorman-Rupp (NYSE: GRC) has evolved from its Ohio origins into a global manufacturer and seller of pumps and pump systems.
Why Could GRC Be a Winner?
- Annual revenue growth of 13.5% over the past five years was outstanding, reflecting market share gains this cycle
- Sales pipeline is in good shape as its backlog averaged 12.7% growth over the past two years
- Earnings per share have massively outperformed its peers over the last two years, increasing by 33% annually
Gorman-Rupp is trading at $50.52 per share, or 22.3x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
Lantheus (LNTH)
Market Cap: $4.41 billion
Pioneering the "Find, Fight and Follow" approach to disease management, Lantheus Holdings (NASDAQGM:LNTH) develops and commercializes radiopharmaceuticals and other imaging agents that help healthcare professionals detect, diagnose, and treat diseases.
Why Do We Like LNTH?
- Market share has increased this cycle as its 35.5% annual revenue growth over the last five years was exceptional
- Free cash flow margin jumped by 19.6 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
- Returns on capital are growing as management capitalizes on its market opportunities
Lantheus’s stock price of $65.75 implies a valuation ratio of 13.3x forward P/E. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free for active Edge members .
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 5 Growth Stocks for this month. 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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