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 is one Russell 2000 stock that could be the next big thing and two best left off your watchlist.
Two Stocks to Sell:
Movado (MOV)
Market Cap: $526.8 million
With its watches displayed in 20 museums around the world, Movado (NYSE:MOV) is a watchmaking company with a portfolio of watch brands and accessories.
Why Do We Avoid MOV?
- Sales stagnated over the last five years and signal the need for new growth strategies
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Movado is trading at $32.21 per share, or 9.5x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why MOV doesn’t pass our bar.
MasterCraft (MCFT)
Market Cap: $465.1 million
Started by a waterskiing instructor, MasterCraft (NASDAQ:MCFT) specializes in designing, manufacturing, and selling sport boats.
Why Are We Out on MCFT?
- Products and services have few die-hard fans as sales have declined by 7.9% annually over the last five years
- Free cash flow margin is projected to show no improvement next year
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
MasterCraft’s stock price of $19.10 implies a valuation ratio of 10.1x forward P/E. Dive into our free research report to see why there are better opportunities than MCFT.
One Stock to Watch:
Freshworks (FRSH)
Market Cap: $3.57 billion
Starting as a customer service solution before expanding into a comprehensive software suite, Freshworks (NASDAQ:FRSH) provides AI-powered software-as-a-service solutions that help companies manage customer service, IT support, sales, and marketing functions.
Why Are We Positive on FRSH?
- Annual revenue growth of 24% over the last five years beat the sector average and indicates its software solves complex business issues
- Software is difficult to replicate at scale and results in a stellar gross margin of 85%
- Robust free cash flow margin of 25.1% gives it many options for capital deployment
At $13.52 per share, Freshworks trades at 3.7x forward price-to-sales. Is now the time to initiate a position? Find out in our full research report, it’s free.
Stocks We Like Even More
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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.