Small caps last week: Russell 2000 correction, Bumble sale, Crocs celeb partnerships

Last week, the Russell 2000 entered a correction amid accelerating U.S. inflation and fears of further Fed rate hikes. Meanwhile, dating-app company Bumble announced its acquisition for $1.3 billion, while drugmaker Liquidia soared around 27% after settling litigation. In addition, analysts spotted opportunities in Crocs and organic baby food maker Once Upon a Farm, cofounded by actress Jennifer Garner. These stories headline our recap of happenings in the small-cap space for the week of October 12-16.

The smid-cap-tracking Russell 2000 index fell 2.2% on Wednesday, entering a technical correction for the first time since March. It had slid 11.3% from its August high. A correction is generally defined as a decline of at least 10% from the most recent peak. A drop of more than 20% marks the start of a bear market.

The selloff followed U.S. inflation data showing that consumer prices rose in September at their fastest pace since April, while core inflation came in above expectations. That heightened fears of further Fed rate increases, with smaller companies particularly sensitive to higher borrowing costs.

On Thursday, the Russell 2000 rebounded 1.4%. It ended the trading week at 2,767.27 points, remaining close to correction territory.

Dating-app company Bumble agreed to be acquired by Ithaca Holdings on Tuesday in an all-cash deal valuing it at $1.3 billion. Holders of its Class A common stock will receive $6.05 per share, a 138% premium to the close on October 9, the last trading day before reports of the deal talks. Bumble shares rose 56.6% on Tuesday to $5.95 apiece. The previous day, they had soared 49.6% following a Wall Street Journal report on a potential deal.

Bumble will become a private company led by Ithaca cofounders Ravi Gupta and John Hegeman. Bumble founder Whitney Wolfe Herd will remain involved with the company. The buyer plans to develop the business using frontier technology, including AI.

The deal comes as Bumble’s business has contracted. In the second quarter, revenue at the group level, which includes Badoo, fell 15.2% year over year to $210.5 million, while its paying-user count declined 16.4%.

Crocs looks like an attractive investment, as it is trading at a discount to peers such as Nike, while new styles, celebrity partnerships, and social media marketing are fueling demand for its footwear, CNBC analyst Justin Zacks argues. One example is Déjà Shoe, a comedy miniseries that Crocs and SuperOrdinary launched on TikTok in June. Viewers can buy featured styles through TikTok Shop while watching.

International sales are another growth driver. The Crocs brand’s revenue outside of North America rose 7.8% year over year to $542 million in the second quarter. The company reported double-digit growth on a constant currency basis in China, India, and Japan. Meanwhile, performance at the HeyDude division remains weak: its revenue declined 5.7% to $179 million.

Crocs has seven “buy” ratings, one “overweight,” nine “hold,” and one “sell.” The average target price is $137 per share, implying around 11% upside from Friday’s close.

Freedom Broker has initiated coverage on organic baby food maker Once Upon a Farm with a “buy” rating at a target price of $25.50 per share. That implies 47% upside from Friday’s close. 

Wider distribution is seen as one of Once Upon a Farm’s main growth drivers. At the end of the second quarter, the company had around 4,100 branded coolers in retail stores and planned to increase that number to around 5,000 by year end. It is also expanding its product lineup to serve families from their children’s first foods through around age 12.

In the second quarter, net sales rose 42.3% year over year to $85.4 million. However, the company remained unprofitable, with a net loss of $5 million. Freedom expects earnings growth to outpace sales growth after 2026. Among risks it cites lower sales per cooler and failures to meet food safety requirements.

According to MarketWatch data, the stock has six “buy” calls versus four “hold” ratings. The average target price of $24.94 per share implies around 43.7% upside from Friday’s close.

Shares of drugmaker Liquidia jumped 26.6% on Wednesday to $33.94 apiece. The company announced it had settled all six legal disputes ongoing with United Therapeutics. The settlement will allow it to continue selling its inhaled drug Yutrepia to patients with pulmonary arterial hypertension.

Net payments will total $380.7 million. Liquidia will make an initial payment of $175 million to United Therapeutics within 30 business days, followed by two installments of $72.7 million each, due on or before January 31 and April 30, 2027. The remaining $60.3 million will go to third parties with interests in the antitrust litigation.

Meanwhile, Liquidia has submitted an application to U.S. health regulators remove the indication for pulmonary hypertension associated with interstitial lung disease from Yutrepia’s label and has stopped promoting the drug for those patients.

Liquidia has five “buy” ratings and one “overweight”  versus three “hold” recommendations. The average target price is $54.38 per share, implying around 58% upside from Friday’s close.