The Russell 2000 (^RUT) is packed with potential breakout stocks, thanks to its focus on smaller companies with high growth potential. However, smaller size also means these businesses often lack the resilience and financial flexibility of large-cap firms, making careful selection crucial.

Picking the right small caps isn’t easy, and that’s exactly why StockStory exists - to help you focus on the best opportunities. That said, here is one Russell 2000 stock that could deliver strong gains and two best left off your watchlist.

Market Cap: $195.1 million

Operating in the emerging beauty health category, the appropriately named BeautyHealth (NASDAQ:SKIN) is a skincare company best known for its Hydrafacial product that cleanses and hydrates skin.

Why Do We Steer Clear of SKIN?

Products aren't resonating with the market as its revenue declined by 4.4% annually over the last three years

Revenue base of $301.9 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale

Persistent operating margin losses suggest the business manages its expenses poorly

BeautyHealth’s stock price of $1.53 implies a valuation ratio of 10.1x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including SKIN in your portfolio, it’s free.

Market Cap: $854.3 million

Starting in the seamless tube industry, Quanex (NYSE:NX) manufactures building products like window, door, kitchen, and bath cabinet components.

Why Is NX Not Exciting?

Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 18.2 percentage points

Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 8.5% annually

Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

At $18.82 per share, Quanex trades at 9.2x forward P/E. To fully understand why you should be careful with NX, check out our full research report (it’s free).

Market Cap: $4.70 billion

Starting as a student loan servicer in the 1970s and evolving through the changing landscape of education finance, Nelnet (NYSE:NNI) provides student loan servicing, education technology, payment processing, and banking services while managing a portfolio of education loans.

Why Is NNI a Top Pick?

Market share has increased this cycle as its 18% annual revenue growth over the last two years was exceptional

Share repurchases over the last two years enabled its annual earnings per share growth of 37.2% to outpace its revenue gains

Management team has demonstrated it can invest in profitable ventures through its 10.7% five-year return on equity

Nelnet is trading at $130.91 per share, or 16.2x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.

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 5 Strong Momentum 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 Exlservice (+354% five-year return). Find your next big winner with StockStory today.