When it comes to undervalued Russell 2000 stocks, the narrative for targeting this specific space is the same as any other market-based motivation: buy low, sell high. It’s just that with the Russell 2K index, we’re dealing with smaller-capitalization enterprises. Roughly, that means anything up to the low-single-digit billions.
As a result, undervalued Russell 2000 stocks will carry a higher risk profile. That said, the beauty of this segment is that we’re not just randomly picking out small companies for speculation. Instead, publicly traded companies must meet a number of criteria before getting accepted into the index. In a way, the indexing process itself organically vets the myriad opportunities.
Of course, you still must conduct your due diligence. However, these undervalued Russell 2000 stocks could pack quite a punch for meeting specific attributes.
PBF Energy (PBF)
A petroleum refining and logistics company, PBF Energy (NYSE:PBF) produces and sells transportation fuels, heating oils, lubricants, petrochemical feedstocks and other petroleum products.
Perhaps in any other time in the market, PBF would have immediately made for one of the compelling undervalued Russell 2000 stocks to buy. However, because of demand woes, PBF incurs a dark cloud hanging over the business.
Primarily, oil-producing nations have attempted to push up the price of hydrocarbons with production cuts. However, the effort hasn’t panned out. On an anecdotal level, you can tell that gasoline prices haven’t skyrocketed like they have in the post-pandemic past.
On a more objective basis, several hydrocarbon-related enterprises have struggled. While PBF has performed relatively well, circumstances weren’t looking that auspicious until recently.
Moving forward, though, PBF should be one of the undervalued Russell 2000 stocks to buy on the booming economy. In addition, it’s only trading at 2.3X trailing-year earnings and an absolutely subterranean 0.16X trailing-year revenue. These stats don’t seem right, especially with a three-year revenue and EBIDTA growth rate of 22.4% and 56.5%, respectively.
Harmony Biosciences (HRMY)
A commercial-stage pharmaceutical company, Harmony Biosciences (NASDAQ:HRMY) focuses on developing and commercializing innovative therapies for patients living with rare neurological diseases. As well, it supports patients living with other neurological diseases who have unmet needs.
In August 2019, Harmony received approval from the U.S. Food and Drug Administration (FDA) for one of its therapeutics designed for the treatment of excessive daytime sleepiness in adult patients with narcolepsy.
Fundamentally, Harmony benefits from multiple wide addressable markets. For example, the global narcolepsy therapeutics market sized saw a valuation of $3.28 billion in 2022. By 2030, this sector could be worth just over $6 billion. In addition, the core central nervous system (CNS) therapeutic market size reached a valuation of $116.2 billion in 2020. And by 2028, the space could soar to $205 billion.
Even better, HRMY is quite undervalued. Currently, the market prices shares at 10.66X forward earnings, below the sector median 20.8X. Also, it trades at 11.31X free cash flow, ranked more favorably than nearly 79% of its peers. Armed with a moderate buy consensus view and a price target of $40.33, Harmony represents one of the undervalued Russell 2000 stocks.
LSI Industries (LYTS)
On the surface, LSI Industries (NASDAQ:LYTS) seems incredibly boring. Per its Form 10-K filing, the company is a leading producer of non-residential lighting and retail display solutions. The lighting portion consists of U.S.-made solutions, an attribute that the company is proud to share. And yeah, it may seem a rather dull business. However, it’s also incredibly relevant, making it a top idea for undervalued Russell 2000 stocks.
According to Mordor Intelligence, the commercial lighting market may reach a valuation of $15.93 billion in 2024. Further, the segment could expand at a compound annual growth rate (CAGR) of 20.93% between this year and 2029. By the end of the forecast period, the sector could be worth $41.19 billion. Notably, LSI Industries’ market cap sits at under $393 million. Relatively speaking, then, it enjoys a massive total addressable market.
In terms of the financials, it prints three-year revenue and EBITDA growth rates of 13.7% and 25.7% respectively. However, it’s cheap, with shares trading at less than 15X trailing-year earnings. That’s favorably below 69% of sector rivals. Finally, it enjoys a unanimous strong buy rating to boot.
— Josh Enomoto
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Source: Investor Place