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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 be a breakout winner and two that may face some trouble.

Two Stocks to Sell:

Wabash (WNC)

Market Cap: $342.9 million

With its first trailer reportedly built on two sawhorses, Wabash (NYSE:WNC) offers semi trailers, liquid transportation containers, truck bodies, and equipment for moving goods.

Why Do We Avoid WNC?

1. Backlog has dropped by 32.8% on average over the past two years, suggesting it’s losing orders as competition picks up

2. Gross margin of 13.9% reflects its high production costs

3. Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 30.5% annually, worse than its revenue

Wabash is trading at $8.19 per share, or 8.6x forward P/E. To fully understand why you should be careful with WNC, check out our full research report (it’s free).

Gorman-Rupp (GRC)

Market Cap: $968.9 million

Powering fluid dynamics since 1934, Gorman-Rupp (NYSE:GRC) has evolved from its Ohio origins into a global manufacturer and seller of pumps and pump systems.

Why Does GRC Give Us Pause?

1. Sales trends were unexciting over the last two years as its 7.1% annual growth was below the typical industrials company

2. Estimated sales growth of 3.8% for the next 12 months implies demand will slow from its two-year trend

3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 4.2 percentage points

At $36.85 per share, Gorman-Rupp trades at 17.2x forward P/E. Read our free research report to see why you should think twice about including GRC in your portfolio, it’s free.

One Stock to Buy:

Stride (LRN)

Market Cap: $6.85 billion

Formerly known as K12, Stride (NYSE:LRN) is an education technology company providing education solutions through digital platforms.

Why Will LRN Outperform?

1. Rise in enrollments indicates high demand for its offerings

2. Free cash flow margin expanded by 6 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends

3. Rising returns on capital show management is finding more attractive investment opportunities

Stride’s stock price of $160.47 implies a valuation ratio of 21.3x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.