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 struggle to keep up.
Two Stocks to Sell:
Korn Ferry (KFY)
Market Cap: $3.88 billion
With clients including 97% of the S&P 100 and operations in 103 offices across 51 countries, Korn Ferry (NYSE:KFY) is a global consulting firm that helps organizations design optimal structures, recruit talent, develop leaders, and create effective compensation strategies.
Why Do We Think KFY Will Underperform?
- Sales tumbled by 1.8% annually over the last two years, showing market trends are working against its favor during this cycle
- Flat earnings per share over the last two years lagged its peers
- Waning returns on capital imply its previous profit engines are losing steam
Korn Ferry is trading at $74.14 per share, or 14.8x forward P/E. Read our free research report to see why you should think twice about including KFY in your portfolio.
AvidXchange (AVDX)
Market Cap: $2.06 billion
Born from the frustration of paper-based accounting processes in the early 2000s, AvidXchange (NASDAQ:AVDX) provides accounts payable automation software and payment solutions that help middle-market businesses digitize and streamline their invoice processing and payments.
Why Does AVDX Fall Short?
- Push for growth has led to negative returns on capital, signaling value destruction
AvidXchange’s stock price of $9.94 implies a valuation ratio of 36x forward P/E. To fully understand why you should be careful with AVDX, check out our full research report (it’s free).
One Stock to Watch:
LegalZoom (LZ)
Market Cap: $2.00 billion
Founded by famous lawyer Robert Shapiro, LegalZoom (NASDAQ:LZ) offers online legal services and documentation assistance for individuals and businesses.
Why Are We Positive On LZ?
- Has the opportunity to boost monetization through new features and premium offerings as its subscription units have grown by 11.7% annually over the last two years
- Share buybacks catapulted its annual earnings per share growth to 177%, which outperformed its revenue gains over the last three years
- Free cash flow margin expanded by 14.9 percentage points over the last few years, providing additional flexibility for investments and share buybacks/dividends
At $11 per share, LegalZoom trades at 11.2x forward EV/EBITDA. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
High-Quality Stocks for All Market Conditions
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - 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 183% over the last five years (as of March 31st 2025).
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