The Russell 2000 (^RUT) is packed with potential breakout stocks, thanks to its focus on smaller companies with high growth potential. However, smaller size also means these businesses often lack the resilience and financial flexibility of large-cap firms, making careful selection crucial.
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 that may face some trouble.
Two Stocks to Sell:
Collegium Pharmaceutical (COLL)
Market Cap: $954.9 million
Pioneering abuse-deterrent technology in a field plagued by addiction concerns, Collegium Pharmaceutical (NASDAQ:COLL) develops and markets specialty medications for treating moderate to severe pain, including abuse-deterrent opioid formulations.
Why Does COLL Worry Us?
- Modest revenue base of $664.3 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Free cash flow margin dropped by 6.5 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Eroding returns on capital suggest its historical profit centers are aging
At $30.61 per share, Collegium Pharmaceutical trades at 4.1x forward P/E. Check out our free in-depth research report to learn more about why COLL doesn’t pass our bar.
First Commonwealth Financial (FCF)
Market Cap: $1.61 billion
Tracing its roots back to the Great Depression era of 1934, First Commonwealth Financial (NYSE:FCF) is a financial holding company that provides consumer and commercial banking, wealth management, and insurance services across Pennsylvania and Ohio.
Why Are We Cautious About FCF?
- Muted 4.8% annual revenue growth over the last two years shows its demand lagged behind its bank peers
- Net interest margin dropped by 13.3 basis points (100 basis points = 1 percentage point) over the last two years, implying the company’s spreads fell as competitors entered the market
- Earnings per share fell by 6.7% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
First Commonwealth Financial’s stock price of $15.41 implies a valuation ratio of 1x forward P/B. If you’re considering FCF for your portfolio, see our FREE research report to learn more.
One Stock to Watch:
Target Hospitality (TH)
Market Cap: $694.6 million
Building mini-communities at places such as oil drilling sites, Target Hospitality (NASDAQ:TH) is a provider of specialty workforce lodging accommodations and services.
Why Do We Like TH?
- Healthy operating margin of 32.8% shows it’s a well-run company with efficient processes
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
- Returns on capital are growing as management capitalizes on its market opportunities
Target Hospitality is trading at $6.99 per share, or 21.1x forward EV-to-EBITDA. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Strong Momentum 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