A Look Into The Micro-Bubble
Updated: Feb 25, 2021
Since the start of the pandemic, we’ve seen a huge growth in a lot of “small” tickers from the Russell 2000 index and various other small and microcap indexes. In fact, over 300 stocks in the Russell are larger than one or more S&P 500 companies.
Plug power is the largest player in the Russell as of now. Last year their stock rose over 970% in value and this year they’re up 48%. These gains position them to be worth more than half of the companies in the S&P.
Some of the companies that have experienced a lot of growth quickly have been in this situation before. Fuelcell Energy ($FCEL) is a perfect example. This year their stock has nearly doubled, and last year it was up fourfold placing it at $20.22 as of the market’s close on Friday. While they have seen huge gains, they have also seen huge losses in the past. During the dotcom bubble, FCEL almost eclipsed 7000 dollars a share. Flashforward to 2019 and they’re down over 99.99% since the turn of the century.
Many analysts believe that many small and microcap indexes are currently in a bubble. A large number of the companies in these small indexes have no earnings and less than ideal financials. However, a lot of this growth is coming from hopes of stimulus and increased sentiment towards the overall economy. Since these companies are so small, they’re leveraged heavier and more tied to the health of the economy than larger companies. Due to this, they were hurt more from the pandemic than companies in larger indexes but should recover quicker.