S&P Index constituent changes occurred after the market closed on Friday, and there are two names in particular, booted out of the S&P 600 Index that I'll be watching. Not surprisingly, both were down in trading on Monday. That is the expected fallout from being dropped from an index.
First is Vera Bradley (VRA) , a name I've owned in the past that has been struggling. the shares are down 46% over the past year, and 22% year-to-date. What's worse is that they are also down 19% over the past five years, and 70% over the past 10. If you are a trader, there have been opportunities to play VRA, but it has been a terrible buy and hold. It continues to display attributes of a small value stock, and currently trades at just 2.49x net current asset value (NCAV). The balance sheet remains solid as VRA ended it's latest quarter with $88 million or $2.65/share in cash, and no debt. That puts it's enterprise value at just $130 million.
VRA has been profitable the past three consecutive quarters, but missed consensus estimates for its most recent reported quarter by five cents (reporting 17 cents versus 22 cent consensus for Q4). Interestingly, the company bought back 650,000 shares during that quarter at an average price of $8.63, in a move that does not look so good now with the stock closing at $6.74 Friday. VRA currently trades at 9x 2024 consensus estimates.
Admittedly, VRA has been on my watch list for quite some time, although I've been unwilling to take a new position in the current environment. The company has some of the earmarks of a potential acquisition candidate - lots of cash, no debt, and a recognizable brand name.
Restaurant chain Red Robin (RRGB) also got the hook from the S&P 600 on Friday. RRGB has been crushed over the past year (down 70%) and is also down 43% year-to-date. The home of "endless fries" has not had a profitable year since 2017, and is expected to lose money this year, before returning to full-year profitability in 2023. At least that's what the four analysts currently covering the company expect. RRGB currently trades at 23x 2023 consensus estimates.
The company ended its latest quarter with $34 million in cash, and $205 million in debt, hardly a stellar balance sheet. RRGB does own the real estate for 37 company owned restaurants which does justify at least some of the debt.
Admittedly, I have not eaten at Red Robin in years, and not because I don't like the food. There are just too many other places I'd rather go to before RRGB. I don't know what the company's path forward is, but it reminds me a bit of Ruby Tuesday, which could never quite get things going as a public company. Ruby Tuesday was asset rich with real estate, but could not turn the corner, and was eventually bought by NRD Capital in 2017 for $335 million. The still struggling chain ended up closing more than half of its locations subsequent to the acquisition, declared Chapter 11 bankruptcy in 2020, and emerged in early 2021, half the chain it used to be.
RRGB is not one I am interested in buying. However, I do want to see how the story unfolds.
Also leaving the S&P 600 are Endo International (ENDO) , Tactile Systems Technology (TCMD) , and Greenhill & Co. (GHL) . Being demoted to the S&P 600 from the S&P 400 are Trinity Industries (TRN) , Urban Outfitters (URBN) , Yelp (YELP) , and LiveRamp Holdings (RAMP) . Ironwood Pharmaceuticals (IRWD) is also being added to the S&P 600.