2 Russell 2000 stocks to consider right now and 1 facing challenges

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.

Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. Keeping that in mind, here are two Russell 2000 stocks that could be the next big thing and one that may face some trouble.

One stock to sell:

Richardson Electronics (RELL)

Market cap: $313.9 million

Founded in 1947, Richardson Electronics (NASDAQ:RELL) is a distributor of power grid and microwave tubes as well as consumables related to those products.

Why Are We Cautious About RELL?

1. Muted 4.5% annual revenue growth over the last five years shows its demand lagged behind its industrials peers

2. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 0% for the last five years

3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

Richardson Electronics’s stock price of $20.90 implies a valuation ratio of 26.8x forward P/E. Dive into our free research report to see why there are better opportunities than RELL.

Two stocks to watch:

Blue Bird (BLBD)

Market cap: $1.81 billion

With around a century of experience, Blue Bird (NASDAQ:BLBD) is a manufacturer of school buses and complementary parts.

Why Should You Buy BLBD?

1. Products are reaching more customers as its unit sales averaged 9.2% growth over the past two years

2. Free cash flow margin grew by 23.3 percentage points over the last five years, giving the company more chips to play with

3. Returns on capital are climbing as management makes more lucrative bets

At $57.20 per share, Blue Bird trades at 13x forward P/E. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.

California Resources (CRC)

Market cap: $4.86 billion

Operating some of California’s most productive oil fields including Elk Hills and Belridge, California Resources (NYSE:CRC) explores for and produces crude oil, natural gas, and natural gas liquids from fields across California.

Why Do We Like CRC?

1. Annual revenue growth of 7.1% over the last ten years was superb and indicates its market share increased during this cycle

2. Attractive asset base lead to a stellar gross margin of 56.1%

3. Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends