Image: BigstockZacks recently upgraded 2 small caps from Neutral to Outperform based on the companies’ recent strategy execution, which appear to be sustainable.
Fitlife Brands, Inc. (FTLF – Free Report)
Fitlife Brands, Inc. is a provider of nutritional supplements serving the wellness and fitness markets. With a market cap of $152.89 million, Fitlife Brands, Inc. has approximately $59 million of TTM sales. In Q2, the company grew revenue 14.7% year-over-year, while adjusted EBITDA grew 29%.Gross Margin increased 480 bps year-over-year 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, such as 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 to be sustainable. Anecdotally, I’ve been struck by the number of young athletes utilizing nutritional supplement products.The stock has recently been seen 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, as low as 10.1X, and with a one-year median of 12.3X.
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Steel Partners Holdings L.P. (SPLP – Free Report)
Next, Steel Partners Holdings is a diversified holding company focused on four segments: Diversified Industrial, Energy, Financial Services, and Supply Chain. Steel Partners has a market cap of $798.56 million with TTM sales of $1.9 billion.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 2023Revenue grew 6.4% year-over-year in Q2 as weakness in the Energy segment was offset by strength in the other three segments. Q2 adjusted EBITDA grew 13.8% year-over-year, bolstered by the consolidation of its Supply Chain segment.Most notably, the company has been able to reduce its debt from $191.4 million to $78.7 million over the last six months, resulting in a material reduction in interest expense. Steel Partners Holdings also has $256.4 million in cash and cash equivalents.The stock has recently been seen 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, as low as 1.04X, and with a five-year median of 3.97X.
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