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.
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 is one Russell 2000 stock that could deliver strong gains and two best left off your watchlist.
Two Stocks to Sell:
Bandwidth (BAND)
Market Cap: $1.39 billion
Powering communications for tech giants like Microsoft, Google, and Zoom, Bandwidth (NASDAQ:BAND) provides cloud-based communications software and APIs that enable businesses to embed voice, messaging, and emergency services into their applications and platforms.
Why Do We Pass on BAND?
- 11.9% annual revenue growth over the last two years was slower than its software peers
- Bad unit economics and steep infrastructure costs are reflected in its gross margin of 37.2%, one of the worst among software companies
- Operating margin failed to increase over the last year, indicating the company couldn’t optimize its expenses
Bandwidth’s stock price of $42.97 implies a valuation ratio of 1.8x forward price-to-sales. Read our free research report to see why you should think twice about including BAND in your portfolio.
Centrus Energy (LEU)
Market Cap: $2.35 billion
Operating the only active U.S. facility licensed to produce high-assay low-enriched uranium (HALEU) for next-generation reactors, Centrus Energy (NYSE:LEU) supplies enriched uranium, the fissile component needed to produce fuel for nuclear power reactors.
Why Do We Steer Clear of LEU?
- Subscale operations are evident in its revenue base of $473.9 million, meaning it has fewer distribution channels than its larger rivals
- Gross margin of 32.3% is below its competitors, leaving less money to invest in exploration and production
- Expenses have increased as a percentage of revenue over the last five years as its EBITDA margin fell by 46.1 percentage points
Centrus Energy is trading at $114.80 per share, or 37.7x forward P/E. To fully understand why you should be careful with LEU, check out our full research report (it’s free).
One Stock to Buy:
Axos Financial (AX)
Market Cap: $5.00 billion
Originally founded as Bank of Internet USA in 1999 before rebranding in 2018, Axos Financial (NYSE:AX) is a diversified financial services company that provides digital banking, securities clearing, and investment advisory solutions to retail and business customers nationwide.
Why Is AX a Good Business?
- Annual net interest income growth of 18.3% over the past five years was outstanding, reflecting market share gains this cycle
- Strong performance of its loan book is reflected in its best-in-class net interest margin of 4.8%
- Performance over the past five years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
At $88.20 per share, Axos Financial trades at 1.3x forward P/B. Is now a good time to buy? See for yourself 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.
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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-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.