2 Small Caps Recently Upgraded to Outperform

Zacks recently upgraded 2 small caps from Neutral to Outperform based on recent strategy execution by these companies which appears sustainable.

Fitlife Brands, Inc. (FTLF) is a provider of nutritional supplements serving the wellness and fitness markets. With a market cap of $153 m, Fitlife Brands, Inc. has $59 m of TTM sales. In Q2 Fitlife Brands (FTLF) grew revenue 14.7% YOY while adj. EBITDA grew 29%.

Gross Margin increased 480 bps YOY to 44.8% as higher margin online sales now comprise nearly two-thirds of revenue combined with effective cost optimization. Additionally, the company has been acquiring well-known brands and successfully rejuvenating them e.g. MusclePharm when incorporating them into their marketing ecosystem.

This asset light model with a high percentage of online sales is conducive to strong FCF (free cash flow). In our opinion, the strength in wellness and fitness trends appears sustainable. Anecdotally, I’ve been struck by the number of young athletes utilizing nutritional supplement products.

The stock is currently trading at 12.8X trailing 12-month EV/EBITDA TTM, which compares to 22.1X for the Zacks sub-industry, 13.5X for the Zacks sector and 14.7X for the S&P 500 Index. Over the past year, the stock has traded as high as 13.9X and as low as 10.1X, with a one-year median of 12.3X.

Source: Zacks Investment Research
 
Steel Partners Holdings L.P. (SPLP) is a diversified holding company focused on four segments: Diversified Industrial, Energy, Financial Services, and Supply Chain. Steel Partners (SPLP) has a market cap of $800 m with TTM sales of $1.9 B.

The Diversified Industrial segment manufactures engineered niche industrial products, including brazing alloys, stainless and low-carbon steel tubing, commercial construction materials, woven substrates for composite applications, power electronics, and specialized blades and films. This segment contributed 62.7% to the total revenues in 2023

Revenue grew 6.4% YOY in Q2 as weakness in the Energy segment was offset by strength in the other three segments. Q2 adj. EBITDA grew 13.8% YOY bolstered by the consolidation of its Supply Chain segment.

Most notably, the company has been able to reduce its debt from $191.4 m to $78.7 m over the last 6 months resulting in a material reduction in interest expense. Steel Partners Holdings (SPLP) also has $256.4 m in cash and cash equivalents.

The stock is currently trading at 1.28X trailing 12-month EV/EBITDA TTM, which compares to 14.44X for the Zacks sub-industry, 14.44X for the Zacks sector and 18.88X for the S&P 500 index.
Over the past five years, the stock has traded as high as 20.85X and as low as 1.04X, with a 5-year median of 3.97X.
 

Source: Zacks Investment Research

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Steel Partners Holdings LP (SPLP): Free Stock Analysis Report
 
FitLife Brands Inc. (FTLF): Free Stock Analysis Report

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Zacks Investment Research