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. That said, here are two Russell 2000 stocks that could be the next breakout winners and one best left off your watchlist.
One Stock to Sell:
Fastly (FSLY)
Market Cap: $3.07 billion
Taking its name from the core advantage it delivers to customers, Fastly (NASDAQ:FSLY) operates an edge cloud platform that processes, secures, and delivers web content as close to end users as possible, enabling faster digital experiences.
Why Are We Hesitant About FSLY?
- Net revenue retention rate of 107% trails the industry benchmark of 110%+ and shows it has a tough time increasing customer spending
- Gross margin of 59.4% reflects its high servicing costs
- Suboptimal cost structure is highlighted by its history of operating margin losses
Fastly’s stock price of $19.42 implies a valuation ratio of 4.2x forward price-to-sales. Dive into our free research report to see why there are better opportunities than FSLY.
Two Stocks to Watch:
Plexus (PLXS)
Market Cap: $7.15 billion
With over 20,000 team members across 26 global facilities, Plexus (NASDAQ:PLXS) designs, manufactures, and services complex electronic products for companies in aerospace/defense, healthcare, and industrial sectors.
Why Do We Watch PLXS?
- Exciting sales outlook for the upcoming 12 months calls for 17.7% growth, an acceleration from its two-year trend
- Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- Stellar returns on capital showcase management’s ability to surface highly profitable business ventures
At $267.28 per share, Plexus trades at 30.2x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
Pelagos Insurance (PLGO)
Market Cap: $2.14 billion
Founded in Bermuda in 2014 and designed to adapt nimbly to evolving market conditions, Pelagos Insurance (NYSE:PLGO) is a global specialty insurance and reinsurance company focused on creating value through strategic capital allocation, expert risk selection and a network of long-term underwriting partnerships.
Why Are We Positive on PLGO?
- Market penetration was impressive this cycle as its net premiums earned expanded by 13.9% annually over the last three years
- Projected revenue growth of 12.4% for the next 12 months is above its two-year trend, pointing to accelerating demand
- Balance sheet strength has increased this cycle as its 29.1% annual book value per share growth over the last four years was exceptional
Pelagos Insurance is trading at $25.05 per share, or 0.9x forward P/B. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
High-Quality Stocks for All Market Conditions
ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren’t just high-quality businesses. Something is happening with them right now. Elite fundamentals meet near-term momentum — both boxes checked at the same time.
Find out which stocks our AI platform is flagging this week. See this week’s Strong Momentum stocks — FREE. Get Our Strong Momentum Stocks for Free HERE.
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-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.