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 a breakout winner and two best left off your watchlist.

Two Stocks to Sell:

Krispy Kreme (DNUT)

Market Cap: $571.7 million

Famous for its Original Glazed doughnuts and parent company of Insomnia Cookies, Krispy Kreme (NASDAQ: DNUT) is one of the most beloved and well-known fast-food chains in the world.

Why Do We Pass on DNUT?

1. Earnings per share have dipped by 21.6% annually over the past four years, which is concerning because stock prices follow EPS over the long term
2. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
3. Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders

Krispy Kreme’s stock price of $3.33 implies a valuation ratio of 15.2x forward EV-to-EBITDA. If you’re considering DNUT for your portfolio, see our FREE research report to learn more.

ProFrac (ACDC)

Market Cap: $1.06 billion

Operating one of the largest electric-powered fracturing fleets in North America, ProFrac (NASDAQ: ACDC) provides hydraulic fracturing services that help oil and gas companies extract hydrocarbons from underground shale formations.

Why Is ACDC Not Exciting?

1. Gross margin of 32.8% reflects its high production costs and unfavorable asset base
2. Day-to-day expenses have swelled relative to revenue over the last five years as its EBITDA margin fell by 1.6 percentage points
3. Low free cash flow margin of 4.3% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders

At $5.86 per share, ProFrac trades at 9x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including ACDC in your portfolio.

One Stock to Buy:

AZZ (AZZ)

Market Cap: $4.10 billion

Responsible for projects like nuclear facilities, AZZ (NYSE: AZZ) is a provider of metal coating and power infrastructure solutions.

Why Is AZZ a Top Pick?

1. Annual revenue growth of 12.7% over the past five years was outstanding, reflecting market share gains this cycle
2. Incremental sales over the last two years have been highly profitable as its earnings per share increased by 22.3% annually, topping its revenue gains
3. Free cash flow margin jumped by 25.1 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends

AZZ is trading at $137.20 per share, or 20.7x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.

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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 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.