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:
Leslie's (LESL)
Market Cap: $145.8 million
Named after founder Philip Leslie, who established the company in 1963, Leslie’s (NASDAQ: LESL) is a retailer that sells pool and spa supplies, equipment, and maintenance services.
Why Are We Out on LESL?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Earnings per share have dipped by 42.7% annually over the past four years, which is concerning because stock prices follow EPS over the long term
- 12× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
At $0.82 per share, Leslie's trades at 11.2x forward P/E. Dive into our free research report to see why there are better opportunities than LESL.
Universal Technical Institute (UTI)
Market Cap: $1.92 billion
Founded in 1965, Universal Technical Institute (NYSE: UTI) is a leading provider of technical training programs, specializing in automotive, diesel, collision repair, motorcycle, and marine technicians.
Why Should You Sell UTI?
- Poor expense management has led to an operating margin of 7.8% that is below the industry average
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 1.7 percentage points
- ROIC of 9.2% reflects management’s challenges in identifying attractive investment opportunities
Universal Technical Institute’s stock price of $35.32 implies a valuation ratio of 15.9x forward EV-to-EBITDA. If you’re considering UTI for your portfolio, see our FREE research report to learn more.
One Stock to Watch:
LegalZoom (LZ)
Market Cap: $1.71 billion
Founded by famous lawyer Robert Shapiro, LegalZoom (NASDAQ: LZ) offers online legal services and documentation assistance for individuals and businesses.
Why Could LZ Be a Winner?
- Subscription Units are rising, meaning the company can increase revenue without incurring additional customer acquisition costs if it can cross-sell additional products and features
- Performance over the past three years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- Free cash flow margin increased by 13.1 percentage points over the last few years, giving the company more capital to invest or return to shareholders
LegalZoom is trading at $9.87 per share, or 9.9x forward EV/EBITDA. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking 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 176% over the last five years.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today for free.
