Small Cap Russell 2000 ETF Fails to Reach Fresh Highs: Understanding the Issue
Hims & Hers Health and Credo Technologies: Diverging Trajectories Amidst Market Shifts
The iShares Russell 2000 ETF (IWM) has failed to reach new highs, despite the Nasdaq 100 and S&P 500 setting records. This divergence can be attributed to differences in market leadership, sector compositions, and market breadth dynamics [1][2][4].
While the Nasdaq 100 is driven by a few dominant large-cap technology companies, the Russell 2000, representing smaller companies, lacks such concentration. As a result, the Russell 2000 has experienced less momentum overall [2][4].
Moreover, the S&P 500 and Nasdaq 100 are heavily weighted towards technology, while the Russell 2000 includes a broader range of sectors, often more sensitive to economic cycles and with less exposure to mega-cap tech’s growth [4].
The current rally in the Nasdaq 100 and S&P 500 is also heavily reliant on strong performance from a few big stocks. In contrast, the Russell 2000's price is more dependent on broad participation by many small stocks. Currently, fewer small-cap stocks are trading above their moving averages, reflecting weaker breadth and limiting new highs for IWM [2].
In terms of individual performances, Hims & Hers Health, a personal and household products company, has seen its market cap peak at $72.50 in February but now trades for $51.94. Despite this drop, the company's earnings are up 11% this year and 28% over the past five years [3]. Hims & Hers Health amounts to just .38% of the Russell 2000 ETF.
On the other hand, Credo Technologies, a data center technology specialist, has seen its stock triple in value from near $30 in late March/early April to the present $120. Over the past five years, Credo Technologies' earnings are up 52%, and this year, they are up an impressive 129% [3]. However, Credo Technologies amounts to only .68% of the Russell 2000 ETF.
Notably, Credo Technologies trades at 30 times its book value, and its price-earnings ratio stands at 432, while Hims & Hers Health trades for 20 times book value and has a price-earnings ratio of 65 [3]. The debt-to-equity ratio for Hims & Hers Health is 1.86, significantly higher than Credo Technologies' ratio of .02 [3].
The short float for Hims & Hers Health is a high 32%, indicating a significant number of shares have been sold short, potentially driving down its stock price [3]. Conversely, Credo Technologies has a low short float, suggesting less bearish sentiment towards the company.
This week, the Russell 2000 ETF closed near $220, a decline from its November 2024 peak of just above $240. The weekly price chart for the Russell 2000 shows a decline as indicated by the dotted red line [3].
Meanwhile, the market cap for Amazon, the world's largest online retailer, stands at $2374 billion, dwarfing both Hims & Hers Health and Credo Technologies [3]. The largest sector within the Russell 2000 ETF is financials, mostly regional banks [3].
The volume levels for Credo Technologies peaked in June and have dropped since then [3]. Despite its impressive growth, Credo Technologies' market cap stands at $20.67 billion, making it the largest of the small caps in the Russell 2000 ETF [3].
In summary, while the Nasdaq 100 and S&P 500 are setting new highs, the Russell 2000 ETF is lagging due to differences in market leadership, sector compositions, and market breadth dynamics. Individual stocks within the Russell 2000, such as Hims & Hers Health and Credo Technologies, are experiencing varying levels of success, with Hims & Hers Health seeing a drop in stock price despite earnings growth and Credo Technologies experiencing impressive growth but trading at high valuations [1][2][3][4].
- The Russell 2000, a small-business index, has failed to reach new highs, contrasting with the finance sector's Nasdaq 100 and S&P 500, which are setting records in the stock-market, highlighting differences in market leadership, sector compositions, and market breadth dynamics.
- Small-cap stocks, like Hims & Hers Health and Credo Technologies, are experiencing varying trajectories within the small-business-focused Russell 2000, with Hims & Hers Health seeing a decline despite growth in earnings, while Credo Technologies is growing impressively but trades at high price-earnings and book value ratios.
- Investing in the business sector, particularly small caps like Hims & Hers Health and Credo Technologies, requires careful analysis and understanding of factors such as individual company performance, valuation, short float, and market breadth.
