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.
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 best left off your watchlist.
Two Stocks to Sell:
1-800-FLOWERS (FLWS)
Market Cap: $292.3 million
Founded in 1976, 1-800-FLOWERS (NASDAQ: FLWS) is an online retailer of flowers, gifts, and gourmet foods, serving customers globally.
Why Do We Avoid FLWS?
- Products and services have few die-hard fans as sales have declined by 5.5% annually over the last five years
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
1-800-FLOWERS is trading at $4.49 per share, or 0.2x forward price-to-sales. Check out our free in-depth research report to learn more about why FLWS doesn’t pass our bar.
Kadant (KAI)
Market Cap: $3.73 billion
Headquartered in Massachusetts, Kadant (NYSE: KAI) is a global supplier of high-value, critical components and engineered systems used in process industries worldwide.
Why Do We Think Twice About KAI?
- Muted 5.9% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- Earnings per share were flat over the last two years while its revenue grew, showing its incremental sales were less profitable
- Diminishing returns on capital suggest its earlier profit pools are drying up
Kadant’s stock price of $315.61 implies a valuation ratio of 3.1x forward price-to-sales. Read our free research report to see why you should think twice about including KAI in your portfolio.
One Stock to Buy:
Mueller Water Products (MWA)
Market Cap: $3.86 billion
As one of the oldest companies in the water infrastructure industry, Mueller (NYSE: MWA) is a provider of water infrastructure products and flow control systems for various sectors.
Why Is MWA a Good Business?
- Operating profits increased over the last five years as the company gained some leverage on its fixed costs and became more efficient
- Performance over the past two years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 32.8% outpaced its revenue gains
- Free cash flow margin grew by 6.6 percentage points over the last five years, giving the company more chips to play with
At $24.76 per share, Mueller Water Products trades at 16.6x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
ONE MORE THING: Top 6 Stocks for This Week. This market is separating quality stocks from expensive ones fast. AI is taking down whole sectors with no warning. In a rotation this fast, you need more than a list of good companies.
Our AI system flagged Palantir before it ran 1,662%. AppLovin before it ran 753%. Nvidia before it ran 1,178%. Each week it produces 6 new names that pass the same tests. Get Our Top 6 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.
