1 Russell 2000 Stock with Solid Fundamentals and 2 Facing Challenges

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 deliver strong gains and two that may face some trouble.

Two Stocks to Sell:

C3.ai (AI)

Market Cap: $1.51 billion

Named after the three Cs of its original focus—carbon, cloud computing, and customer relationship management—C3.ai (NYSE:AI) provides enterprise AI software that helps organizations develop, deploy, and operate large-scale artificial intelligence applications across various industries.

Why Do We Avoid AI?

1. Products, pricing, or go-to-market strategy may need some adjustments as its 3.8% average billings growth over the last year was weak
2. Sky-high servicing costs result in an inferior gross margin of 51.8% that must be offset through increased usage
3. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value

C3.ai’s stock price of $10.72 implies a valuation ratio of 4.7x forward price-to-sales. Read our free research report to see why you should think twice about including AI in your portfolio.

ACV Auctions (ACVA)

Market Cap: $1.16 billion

Founded in 2014, ACV Auctions (NASDAQ:ACVA) is an online auction marketplace for car dealers and wholesalers to buy and sell used cars.

Why Does ACVA Worry Us?

1. Gross margin of 27.4% reflects its high servicing costs
2. Highly competitive market means it’s on the never-ending treadmill of sales and marketing spend
3. Low free cash flow margin of 4.1% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders

At $6.75 per share, ACV Auctions trades at 15.9x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than ACVA.

One Stock to Watch:

Grid Dynamics (GDYN)

Market Cap: $592.8 million

With engineering centers across the Americas, Europe, and India serving Fortune 1000 companies, Grid Dynamics (NASDAQ:GDYN) provides technology consulting, engineering, and analytics services to help large enterprises modernize their technology systems and business processes.

Why Does GDYN Stand Out?

1. Annual revenue growth of 29.1% over the past five years was outstanding, reflecting market share gains this cycle
2. Earnings growth has trumped its peers over the last five years as its EPS has compounded at 22.2% annually
3. Historical investments are beginning to pay off as its returns on capital are growing

Grid Dynamics is trading at $7.15 per share, or 16.4x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.

Stocks We Like Even More

If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.

Don’t wait for the next volatility shock. Check out our Top 9 Market-Beating Stocks. 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.