1 Russell 2000 Stock on Our Buy List and 2 That Underwhelm

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. That said, here is one Russell 2000 stock that could be a breakout winner and two that may face some trouble.

Two Stocks to Sell:

Central Garden & Pet (CENT)

Market Cap: $1.85 billion

Enhancing the lives of both pets and homeowners, Central Garden & Pet (NASDAQ:CENT) is a leading producer and distributor of essential products for pet care, lawn and garden maintenance, and pest control.

Why Should You Sell CENT?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
2. Sales are projected to be flat over the next 12 months and imply weak demand
3. Underwhelming 8.5% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its falling returns suggest its earlier profit pools are drying up

At $32.10 per share, Central Garden & Pet trades at 11.6x forward P/E. Read our free research report to see why you should think twice about including CENT in your portfolio.

Mercury Systems (MRCY)

Market Cap: $6.01 billion

Founded in 1981, Mercury Systems (NASDAQ:MRCY) specializes in providing processing subsystems and components for primarily defense applications.

Why Do We Think MRCY Will Underperform?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 7.6 percentage points
3. Revenue growth over the past five years was nullified by the company’s new share issuances as its earnings per share fell by 18.3% annually

Mercury Systems’s stock price of $99 implies a valuation ratio of 102.2x forward P/E. To fully understand why you should be careful with MRCY, check out our full research report (it’s free).

One Stock to Buy:

Distribution Solutions (DSGR)

Market Cap: $1.30 billion

Founded in 1952, Distribution Solutions (NASDAQ:DSGR) provides supply chain solutions and distributes industrial, safety, and maintenance products to various industries.

Why Will DSGR Beat the Market?

1. Impressive 15.1% annual revenue growth over the last two years indicates it’s winning market share this cycle
2. Solid gross margin and unit economics free up capital for marketing and product development efforts
3. Earnings per share grew by 34.8% annually over the last two years and trumped its peers

Distribution Solutions is trading at $28.04 per share, or 17.8x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.

Stocks We Like Even More

Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.

The names generating the next wave of massive growth are right here in our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).

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-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.