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 deliver strong gains and two that may struggle to keep up.
Two Stocks to Sell:
Enterprise Financial Services (EFSC)
Market Cap: $2.23 billion
Starting as a single bank in Missouri in 1988 and expanding through strategic growth, Enterprise Financial Services (NASDAQ: EFSC) is a financial holding company that offers banking, lending, and wealth management services to businesses and individuals across seven states.
Why Does EFSC Fall Short?
- 8.4% annual revenue growth over the last two years was slower than its banking peers
- Costs have risen faster than its revenue over the last four years, causing its efficiency ratio to worsen by 9.4 percentage points
- Incremental sales over the last two years were less profitable as its 3.6% annual earnings per share growth lagged its revenue gains
Enterprise Financial Services’s stock price of $61.60 implies a valuation ratio of 1.1x forward P/B. Dive into our free research report to see why there are better opportunities than EFSC.
Ladder Capital (LADR)
Market Cap: $1.20 billion
Founded during the 2008 financial crisis when traditional lenders retreated from commercial real estate, Ladder Capital (NYSE: LADR) is a real estate investment trust that originates commercial real estate loans, owns commercial properties, and invests in real estate securities.
Why Are We Cautious About LADR?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 8.8% annually over the last two years
- Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 16.8% annually, worse than its revenue
- Tangible book value per share was flat over the last five years, indicating it’s failed to build equity value this cycle
Ladder Capital is trading at $9.46 per share, or 0.9x forward P/B. To fully understand why you should be careful with LADR, check out our full research report (it’s free).
One Stock to Buy:
Karat Packaging (KRT)
Market Cap: $994 million
Founded as Lollicup, Karat Packaging (NASDAQ: KRT) distributes and manufactures environmentally-friendly disposable foodservice packaging solutions.
Why Is KRT a Top Pick?
- Offerings and unique value proposition resonate with customers, as seen in its above-market 9.8% annual sales growth over the last two years
- Earnings growth has massively outpaced its peers over the last two years as its EPS has compounded at 25.7% annually
- Free cash flow margin grew by 13.8 percentage points over the last five years, giving the company more chips to play with
At $49.86 per share, Karat Packaging trades at 26.7x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free.
Stocks We Like Even More
ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.
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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-micro-cap company Kadant (+214% between June 2020 and June 2025). Find your next big winner with StockStory today.
