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.

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 are two Russell 2000 stocks that could be the next big thing and one best left off your watchlist.

One Stock to Sell:

Latham (SWIM)

Market Cap: $654.1 million

Started as a family business, Latham (NASDAQ:SWIM) is a global designer and manufacturer of in-ground residential swimming pools and related products.

Why Are We Cautious About SWIM?

1. Annual sales declines of 14.5% for the past two years show its products and services struggled to connect with the market

2. Incremental sales over the last four years were much less profitable as its earnings per share fell by 21.4% annually while its revenue grew

3. Negative returns on capital show that some of its growth strategies have backfired

Latham is trading at $5.55 per share, or 52.2x forward P/E. Check out our free in-depth research report to learn more about why SWIM doesn’t pass our bar .

Two Stocks to Watch:

Inter Parfums (IPAR)

Market Cap: $3.50 billion

With licenses to produce colognes and perfumes under brands such as Kate Spade, Van Cleef & Arpels, and Abercrombie & Fitch, Inter Parfums (NASDAQ:IPAR) manufactures and distributes fragrances worldwide.

Why Are We Backing IPAR?

1. Annual revenue growth of 18.2% over the last three years was superb and indicates its market share is rising

2. Differentiated product offerings are difficult to replicate at scale and result in a premier gross margin of 58.7%

3. Free cash flow margin jumped by 5.1 percentage points over the last year, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends

Inter Parfums’s stock price of $109.04 implies a valuation ratio of 20.3x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free .

SmartRent (SMRT)

Market Cap: $184.8 million

Founded by an employee at a real estate rental company, SmartRent (NYSE:SMRT) provides smart home devices and software for multifamily residential properties, single-family rental homes, and student housing communities.

Why Could SMRT Be a Winner?

1. Impressive 35.1% annual revenue growth over the last four years indicates it’s winning market share this cycle

2. Ability to secure long-term commitments with customers is evident in its 41.5% average ARR growth over the past two years

3. Incremental sales significantly boosted profitability as its annual earnings per share growth of 52.1% over the last two years outstripped its revenue performance