Small-cap stocks in the Russell 2000 (^RUT) can be a goldmine for investors looking beyond the usual large-cap names. But with less stability and fewer resources than their bigger counterparts, these companies face steeper challenges in scaling their businesses.
The high-risk, high-reward nature of the Russell 2000 makes stock selection critical, and we’re here to guide you toward the right ones. That said, here is one Russell 2000 stock that could deliver strong gains and two that may face some trouble.
Two Stocks to Sell:
Dave & Buster's (PLAY)
Market Cap: $413.4 million
Founded by a former game parlor and bar operator, Dave & Buster’s (NASDAQ: PLAY) operates a chain of arcades providing immersive entertainment experiences.
Why Do We Pass on PLAY?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and in-store experience
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Dave & Buster’s stock price of $11.92 implies a valuation ratio of 8.2x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than PLAY.
STAAR Surgical (STAA)
Market Cap: $1.41 billion
With over 2.5 million implants performed worldwide, STAAR Surgical (NASDAQ: STAA) designs and manufactures implantable lenses that correct vision problems without removing the eye's natural lens.
Why Is STAA Risky?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 5.7% annually over the last two years
- Free cash flow margin dropped by 26.6 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
STAAR Surgical is trading at $28.23 per share, or 37.4x forward P/E. Check out our free in-depth research report to learn more about why STAA doesn’t pass our bar.
One Stock to Buy:
Coastal Financial (CCB)
Market Cap: $1.03 billion
Pioneering the intersection of traditional banking and financial technology in the Pacific Northwest, Coastal Financial (NASDAQ: CCB) operates as a bank holding company that provides traditional banking services and Banking-as-a-Service (BaaS) solutions to consumers and businesses.
Why Are We Backing CCB?
- Annual net interest income growth of 38% over the last five years was superb and indicates its market share increased during this cycle
- High-yielding loan book and low cost of funds result in a best-in-class net interest margin of 7.2%
- Balance sheet strength has increased this cycle as its 20.3% annual tangible book value per share growth over the last two years was exceptional
At $67.96 per share, Coastal Financial trades at 1.9x forward P/B. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.
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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.
