I'm going to start highlighting a Russell 2000 company daily to show the ridiculousness of the valuation of this index.

I'll start with the largest holding in $IWM and one of the major reasons the index has been bid up through call options, Penn National Gaming $PENN, of Davey Daytrader fame.

For those who don't know what $PENN does besides owning Barstool Sports, here's a snapshot from Yahoo:

$PENN represents 0.55% of $IWM. The company has posted a blistering -$6.23/ share in earnings over the past 4 quarters, highlighted by a huge miss in Q2. $PENN is forecasted to have delivered less than 50 cents for Q4, keeping the company firmly in the red for the year.

$PENN balance sheet is a mess, w/ $526.1M in cash & receivables against $905.6M in current liabilities. The company is also sitting on $11.094B in debt.

Again, this company is the largest holding in $IWM and a primary driver of it being bid up the past 2 months. They get worse.

I'm going to try to keep one running thread for these $IWM company analyses to serve as an archive, but also to illustrate just how dire the situation is for many small cap companies.

Caesar's Entertainment $CZR is the second largest holding in $IWM at 0.53%, just behind $PENN. It's ironic that the top two holdings are gaming companies, because long $IWM here rivals any of the worst bets in a casino without the free drinks.

$CZR is the emperor of debt. The company is sitting on $15.23B in debt, a stunning $9.8B of which was just issued this year (thanks Fed). This represents a Debt to Equity ratio of 4.5.

The near term picture isn't any better. $CZR has $1.04B in Cash & Equivalents against $1.89B in Current Liabilities. Considering they've burned through $294.2M in cash over the past 12 months, things aren't improving.

Earnings are a trainwreck, as the company has lost $1.22B over the past 12 months, equating to $12.51/share. With Vegas unofficially shut down by tourists, this isn't likely to improve for some time.

Small cap enthusiasts keep saying that the Russell 2000 needs to play catch up with other high flying indices. That isn't the case with $CZR, which is up 1200% from it's low this spring, despite absolutely putrid performance.

Look for another profile tomorrow and remember, the "I" in $IWM stands for "Insolvency".

I'm having fun with this thread, so let's examine the #3 holding in $IWM, Plug Power $PLUG, in at 0.51%.

$PLUG is another darling of the $IWM call crowd.

$PLUG makes fuel cells primarily for the material handling market. Surely their financials look better than $PENN and $CZR.

$PLUG has a massive $13.4B market cap, but only $307.5M in revenue to support it. The company has lost $103.8M over the past 12 months, continuing a trend over the past 4 years of losing roughly $100M a year.

Despite that abysmal company performance, $PLUG stock has outperformed $TSLA over the past year, up just over 800%. Odd, considering there isn't the cult-like following surrounding fuel cells for AGVs in a warehouse like there is with Elon Musk.

$PLUG primary market of AGVs is roughly $3.3B annually...for the entire AGV, not just the portion that $PLUG sells. It is expected to grow at 20% CAGR, but market size limits growth potential without expanding into other more competitive verticals.

$PLUG balance sheet is a stronger than the gaming companies at #1 and #2, with $139M in cash vs $150M in Current Liabilities + $461M in debt. But....

The company's Free Cash Flow burn continues to grow, from -$66M in 2019 to -$188.5M over the past 12 months.

Maybe $UNPLUG is a better ticker for this one.

82.7% of you were correct.

The #4 spot in the Russell 2000 goes to Sunrun Inc $RUN at 0.41% weighting.

$RUN operates in the fast-paced, high barrier to entry, fully-moated world of completely commoditized residential solar panels and systems. Even so, the stock is up over 900% from the March lows, making $RUN another $IWM company that has far outran its underlying business.

$RUN Balance Sheet isn't terrible, with a Current Ratio > 1, Debt to Equity of *only* 2.7, and $276M in cash on hand. That said...

The company is a cash incinerator, burning through $1.11B in Free Cash Flow over the past 12 months. Net Income has gotten steadily worse, from a loss of $260.2M in 2018 to a loss of $416.5M (despite some creative accounting) over the past 12 months.

Again, $RUN is selling residential solar systems and has progressively lost more money each year during a supposed housing boom. I'd run from this one just like I ran from $IWM.

This afternoon's update will detail the first profitable and financially sound company on the list.

Alright back at it...and with the first profitable company in the index, Darling Ingredients $DAR. $DAR represents 0.38% of $IWM. The company makes natural additives for food, livestock feed, and fuels.

Although $DAR isn't a growth company (Revenue has declined 6% over the past 4 years), they are profitable and trade at a P/E of 21.53 - high for an agricultural company whose revenue is declining, but far more sensible than any other company profiled.

$DAR Balance Sheet is pretty good as well, with Debt to Equity 0.57, however Cash on hand has declined from $107M to years ago to $67M today. Overall, $DAR is financially healthy and making money.

So, through the 5 largest holdings in $IWM, we have:
1 profitable company vs
4 money losing-companies

2 growth companies vs 3 with declining revenue pre-COVID

4 companies with an unmanageable debt load

None of the narratives for buying this are accurate.