Tuesday's market action, which saw the S&P 500 decline 1.9%, was interesting in comparison to last Friday's drop for one reason -- smaller names held up fairly well in comparison.
As I mentioned in Monday's column, Friday's market selloff was particularly brutal for small-caps and microcaps. On Tuesday, the Russell 2000 Index (down 1.91%) and Russell Microcap Index (down 1.27%), while still in negative territory, held their own relative to large-caps. That was good to see. Continued "throw the baby out with the bathwater" trading days where smaller stocks are ditched to a much greater extent than their larger cousins send shivers up my spine.
Meanwhile, I continue to look for year-end bargains, and they are few and far between, at least in my view. I continue to look at busted initial public offerings (IPOs), but am in no hurry in this environment. Higher-quality (in the beef they use, that is) burger name BurgerFI International (BFI) continues to head lower. Its shares are down 52% year to date and closed at a 52-week low Tuesday.
Restaurants are tricky in the best of times, and this is certainly not the best of times. BurgerFi is expected to ramp up revenues in 2022 to $210 million, up from an estimated $68 million this year, which is a nice jump, but the company is not expected to be profitable. I can get very interested in a name when the growth crowd moves on, which appears to be the case with BFI. In addition, short interest currently stands at around 4.4%.
PetMed Express was a member of my 2018 Tax Loss Selling Recovery Portfolio and has seen its revenue stagnate in an increasingly competitive environment for pet product dollars. PetMed shares are down 15% year to date and currently trade at about 20x next year's "consensus" estimates (just two analysts cover the name); they yield 4.4%. PetMed ended its latest quarter with a pretty clean balance sheet, including $107 million, or $2.28 per share in cash and no debt. Short interest is fairly substantial here as well, at about 25%.
Big 5 Sporting Goods, which I owned after the great specialty retail rout of 2017 (it was also a member of my 2018 Double Net Value Portfolio, and not a positive contributor), currently trades at about 7.5x next year's "consensus" estimate (just one analyst covers it) and yields 4.2%. The balance sheet is clean; Big 5 ended its latest quarter with $114 million, or $5.23 per share, in cash and just $10 million in debt. Big 5 stock has already had a big year and is up 148% year to date. From Nov. 1 to Nov. 11 its shares jumped from about $25 to $44 before settling back to the low $20s, action that likely was due to a short squeeze. That's an added element to this story, as Big 5 short interest is around 33%.
That's where I am these days in a somewhat futile search for potential value; a busted restaurant IPO, a stagnating revenue pet pharmacy and volatile sporting goods retailer.