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.

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. Keeping that in mind, here are two Russell 2000 stocks that could be the next breakout winners and one best left off your watchlist.

One Stock to Sell:

Greenbrier (GBX)

Market Cap: $1.39 billion

Having designed the industry’s first double-decker railcar in the 1980s, Greenbrier (NYSE:GBX) supplies the freight rail transportation industry with railcars and related services.

Why Do We Avoid GBX?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 1.7% annually over the last two years

2. Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 13.3%

3. Free cash flow margin dropped by 12 percentage points over the last five years, implying the company became more capital intensive as competition picked up

At $44.32 per share, Greenbrier trades at 6.5x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including GBX in your portfolio, it’s free.

Two Stocks to Watch:

Cal-Maine (CALM)

Market Cap: $4.66 billion

Known for brands such as Egg-Land’s Best and Land O’ Lakes, Cal-Maine (NASDAQ:CALM) produces, packages, and distributes eggs.

Why Could CALM Be a Winner?

1. Remarkable 35.3% revenue growth over the last three years demonstrates its ability to capture significant market share

2. Performance over the past three years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 280% outpaced its revenue gains

3. Robust free cash flow margin of 17.9% gives it many options for capital deployment, and its growing cash flow gives it even more resources to deploy

Cal-Maine is trading at $94.61 per share, or 9.1x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.

Verra Mobility (VRRM)

Market Cap: $3.74 billion

Managing over 165 million tolling transactions per year, Verra Mobility (NYSE:VRRM) is a leading provider of smart mobility technology that enhances safety, efficiency, and convenience on roadways.

Why Is VRRM a Good Business?

1. Annual revenue growth of 13.8% over the past five years was outstanding, reflecting market share gains this cycle

2. Offerings are difficult to replicate at scale and lead to a best-in-class gross margin of 62.1%

3. VRRM is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders, and its recently improved profitability means it has even more resources to invest or distribute