Most investors gravitate toward the Nasdaq Composite and the S&P 500 when they think about stock market indices, but it is also worth considering Russell 2000 stocks to buy. Some stock screeners let you shortlist stocks from either of these indices and the Dow Jones Industrial Average. However, not every stock screener lets you filter Russell 2000 stocks.
The Russell 2000 is filled with lesser-known stocks. In some cases, it’s best off, as a bunch of the stocks in the Russell 2000 are losing value. The index is flat year-to-date and has only gained 30% over the past five years. It’s a low bar to clear for many stocks, and most of the Russell 2000 stocks don’t hit the mark.
However, some stocks in the index crush the stock market and still have reasonable valuations. Super Micro Computer (NASDAQ:SMCI) was in the Russell 2000 before it was added to the S&P 500. That stock is up by more than 4,000% over the past five years, and a few stocks in the Russell 2000 ended up with quadruple-digit gains within a few years. Here are the three Russell 2000 stocks to buy:
Semrush (SEMR)
Semrush (NYSE:SEMR) is flat year-to-date but has gained 55% over the past year. The search engine marketing tool is a popular resource for many small businesses, content creators, and corporations. The firm has roughly 112,000 paying customers who have subscription plans.
Most of Semrush’s revenue is recurring. Annual recurring revenue came to $354.2 million in Q1 2024, which is up by 21% year-over-year. Revenue also increased by 21% year-over-year to reach $85.8 million for the quarter. The company uses artificial intelligence to strengthen its core product and to incentivize current customers to upgrade their plans. Semrush anticipates 20% year-over-year revenue growth in the second quarter of 2024. Based on guidance, full-year revenue growth should range from 19% to 20%.
Semrush recently became profitable and delivered a GAAP net income of $2.14 million, compared to a net loss of $9.86 million in the same quarter last year. Rising profits should lead to a more attractive valuation for long-term investors.
Upwork (UPWK)
Upwork (NASDAQ:UPWK) enjoyed quite the run during the pandemic but remains more than 80% removed from its all-time high. While the 5-year chart and a 27% year-to-date loss don’t look promising, Upwork may be on the way to a recovery.
The stock currently trades at a 31 P/E ratio and is delivering higher profits. Revenue increased by 19% year-over-year in the first quarter, while net income was up by 7% year-over-year. Profit margins should expand considerably in the upcoming quarters since Upwork’s advertising segment is growing faster than any other part of the company’s business. Upwork also surpassed 100,000 active Freelancer Plus subscriptions, which represents a 76% year-over-year improvement.
Remote work is here to stay, and more people want flexibility with how and when they work. Upwork offers that flexibility by connecting freelancers with job opportunities. The freelance marketplace stands to benefit greatly as more people pick up side hustles and seek ways to work from home.
Elf Beauty (ELF)
Elf Beauty (NYSE:ELF) is one of the Russell 2000 stocks that has comfortably outperformed the stock market. It demonstrates what can happen if investors dig deeper into the index and find promising opportunities. Shares are up by 46% year-to-date and have soared more than 1,300% over the past five years.
Elf Beauty won’t remain in the Russell 2000 for long, as it will join the Russell 1000 on June 28th. The cosmetics firm produces beauty products that use cruelty-free ingredients, and it’s been a big hit with Gen Z. The company recently reported 71% year-over-year net sales growth in Q4 FY24 and gained market share for the 5th consecutive year. Elf Beauty also had its 21st consecutive quarter of net sales growth.
Leadership indicated that Elf Beauty’s high growth should continue into fiscal 2025, and Wall Street analysts also seem optimistic about the stock. Elf Beauty is currently rated as a Strong Buy, and the highest price target of $250 per share suggests a potential 23% upside.
On this date of publication, Marc Guberti held a long position in ELF. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.