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 be the next big thing and two that may face some trouble.
Two Stocks to Sell:
Frontdoor (FTDR)
Market Cap: $4.00 billion
Established in 2018 as a spin-off from ServiceMaster Global Holdings, Frontdoor (NASDAQ:FTDR) is a provider of home warranty and service plans.
Why Does FTDR Worry Us?
- Sluggish trends in its home service plans suggest customers aren’t adopting its solutions as quickly as the company hoped
- Estimated sales growth of 6.8% for the next 12 months is soft and implies weaker demand
- Projected 1.2 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
Frontdoor is trading at $50.03 per share, or 13x forward P/E. To fully understand why you should be careful with FTDR, check out our full research report (it’s free for active Edge members).
Northwest Bancshares (NWBI)
Market Cap: $1.75 billion
Founded in 1896 and operating across Pennsylvania, New York, Ohio, and Indiana, Northwest Bancshares (NASDAQ:NWBI) is a bank holding company that operates Northwest Bank, providing personal and business banking, investment management, and trust services.
Why Does NWBI Fall Short?
- Annual revenue growth of 4.2% over the last five years was below our standards for the banking sector
- Muted 5.8% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Capital trends were unexciting over the last five years as its 1% annual tangible book value per share growth was below the typical banking firm
At $11.69 per share, Northwest Bancshares trades at 0.9x forward P/B. Read our free research report to see why you should think twice about including NWBI in your portfolio.
One Stock to Watch:
Boot Barn (BOOT)
Market Cap: $5.71 billion
With a strong store presence in Texas, California, Florida, and Oklahoma, Boot Barn (NYSE:BOOT) is a western-inspired apparel and footwear retailer.
Why Is BOOT on Our Radar?
- Aggressive strategy of rolling out new stores to gobble up whitespace is prudent given its same-store sales growth
- Brick-and-mortar locations are witnessing elevated demand as their same-store sales growth averaged 2.9% over the past two years
- Notable projected revenue growth of 13.7% for the next 12 months hints at market share gains
Boot Barn’s stock price of $185.35 implies a valuation ratio of 25.9x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
Stocks We Like Even More
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check 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 183% over the last five years (as of March 31st 2025).
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. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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