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.
Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. 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:
Covenant Logistics (CVLG)
Market Cap: $1.17 billion
Started with 25 trucks and 50 trailers, Covenant Logistics (NASDAQ: CVLG) is a provider of expedited long haul freight services, offering a range of logistics solutions.
Why Is CVLG Risky?
- Annual revenue growth of 3.8% over the last two years was below our standards for the industrials sector
- Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 15.7% annually
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
At $46.46 per share, Covenant Logistics trades at 22.6x forward P/E. If you’re considering CVLG for your portfolio, see our FREE research report to learn more.
HNI (HNI)
Market Cap: $2.86 billion
With roots dating back to 1944 and a significant acquisition of Kimball International in 2023, HNI (NYSE: HNI) manufactures and sells office furniture systems, seating, and storage solutions, as well as residential fireplaces and heating products.
Why Do We Think Twice About HNI?
- Annual earnings per share growth of 9.3% underperformed its revenue over the last two years, showing its incremental sales were less profitable
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- High net-debt-to-EBITDA ratio of 6× could force the company to raise capital on unfavorable terms if market conditions deteriorate
HNI’s stock price of $39.69 implies a valuation ratio of 9.1x forward P/E. To fully understand why you should be careful with HNI, check out our full research report (it’s free).
One Stock to Watch:
1st Source (SRCE)
Market Cap: $1.96 billion
Tracing its roots back to 1863 during the Civil War era, 1st Source Corporation (NASDAQ: SRCE) is a regional bank holding company that provides commercial, consumer, specialty finance, and wealth management services across Indiana, Michigan, and Florida.
Why Does SRCE Stand Out?
- Net interest margin grew by 66.4 basis points (100 basis points = 1 percentage point) over the last two years, giving the firm more chips to play with
- Share buybacks propelled its annual earnings per share growth to 12.7%, which outperformed its revenue gains over the last five years
- Annual tangible book value per share growth of 9.4% over the past five years was outstanding, reflecting strong capital accumulation this cycle
1st Source is trading at $81.57 per share, or 1.4x forward P/B. Is now a good time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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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 Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.
