I like to buy the forgotten, lonely, and broken then sell the exuberant and frothy. As a once treasured stock tarnishes the masses move on to the next shiny toy, leaving destruction in their wake. That's when I get excited. I try to find what has been tossed aside, knowing that if the sun hits just right the sparkle may bring them back.
Chembio Diagnostics, Inc (CEMI) is a medical diagnostic test developer. On Mar 16, 2020 the stock closed at $2.36, it's lowest point in 9 years. Four days later CEMI announced a $4M order for a COVID-19 test. Eleven days after that CEMI launched their DPP COVID-19 test, triggering the highest volume day ever. The stock peaked at $15.89 a month later.
Alas it was not meant to be as the FDA rejected their test on June 17 and the stock instantly gapped down from $10 to $4. What a change of heart.
CEMI is not giving up. On July 6 they announced a US FDA contract to develop a COVID point-of-care antigen system. They also announced they are revising the system and will seek EUA approval from the FDA for their system. The question is what happens if they get that FDA clearance.
Check out this chart. You can see the dip in March matching the rest of the market. That huge volume spike on Apr 1 is the COVID test launch press release. Look at that rise! I'm betting it's not the last.
When a theme befalls the market you can make a lot of money getting in front of the hype. There is always something on the fore front of the market's brain. When natural disasters strike you'll see movement in construction and generators. As legislation has moved to de-criminalize marijuana you see stock spikes in companies that just mention it in a press release. There doesn't even have to be anything material behind the announcement, if the market is hot on a theme you may see a spike.
As corona virus has moved around the world and uprooted our lives, many stocks have shot to the moon on news, rumors, and announcements.
Earlier this year DYNT tripled just because people realized they sell masks, wipes, and sanitizing spray. When the quarterlies revealed sales didn't live up to the hope the stock fell back down. I sold some on the spike and bought back on the fall.
Take a look at VODG. Some well worded COVID press releases pushed this little stem cell stock as high as a dollar from the $0.20 range. I like the company and still hold the stock because it's full of potential. News can really move a stock if the starting point is small, ignored, and illiquid.
We are a leading provider of point-of-care diagnostic products for the detection and diagnosis of infectious diseases. We have been expanding our product portfolio based upon our proprietary Dual Path Platform, which we refer to as DPP, which uses a small drop of blood from the fingertip to provide high-quality, cost-effective diagnostic results in approximately 15 minutes. We seek to build additional revenue streams by entering into technology collaborations with leading global healthcare companies to leverage the DPP technology platform.
The DPP technology platform addresses the lateral flow test market, which includes infectious diseases, cardiac markers, cholesterol and lipids, pregnancy and fertility, and drugs of abuse. Based on our review of third-party reports and other information, we estimate that the market for lateral flow tests will increase from $5.5 billion in 2017 to $8.2 billion in 2022, representing a compound annual growth rate of 8.2%.
Infectious disease tests constitute the largest and fastest growing, segment of the lateral flow test market.
We have obtained FDA approvals and, directly or through our partners, international regulatory approvals for infectious disease tests as follows:Several tests in our infectious disease pipeline are approaching commercialization, and several have received initial regulatory approvals:
- 17.7M shares outstanding vs 17.2M in 2018
- no preferred
- 550k warrants outstanding exercisable at $5.22
- Cash 18.3M vs 12.5
- BV $24M vs 33.3
- revenue $34.5M vs 34.6
- EPS -$0.81 vs -$0.54
- Cash $36.4M
- shares 20.2M
Now, I would like to discuss our plans to leverage Chembio's technology to develop a portfolio of COVID-19 tests. We are encouraged by the exponential market growth observed as a result of the immense demand for various types of COVID-19 tests across a wide variety of settings and providers. This interest includes demand from areas outside of traditional health care verticals, such as companies seeking to establish back to work programs. We feel the advantages and versatility provided by our DPP assays and micro readers, creates an opportunity for us to take share and build a meaningful position in this market. Our success here is dependent on 3 factors: product development, regulatory clearance and commercial execution.
In product development, we are working on a complementary set of COVID-19 tests with unique capabilities to assist clinicians in all phases of virus detection and infection monitoring. We have 2 tests currently under development, the revised DPP CPVOD-19 IgM/IgG system for antibody detection, and the DPP COVID-19 antigen system for viral protein detection. Further prolonging development is a revised DPP COVID-19 IgM/IgG systems, serology test for the detection of 2 types of COVID-19 antibodies.
As always liked very much the idea. Thanks for sharing.ReplyDelete
Just more pump and dump stocksReplyDelete
It's unfortunate that you don't understand the difference between a pump and dump and thoughtful analysis. This was the latter and very well written.Delete
Look at the charts man.. spike and then back to the lows.. if the stock was high quality or with any moat it should keep trending and not come back downDelete
stock movement is all that matters. Moats and quality are but one way to get thereDelete
you're certainly the best speculator I've ever come acrossDelete
VEry nice article. thanksReplyDelete
The Covid 19 Is tricky. Look at OPK. has already approved testing and distrubution spiked and fell back due to so many other companies developing Tests and 5 min testes.
By the way - regarding DYNT: you are not worried to hol it as deregistration from NQ is coming EOY if they dont go above 1
on DYNT if the stock keeps going down I'll probably buy some more. It's a smaller position as almost all of mine are.Delete
I have a few problems:ReplyDelete
1. Abbott already made a contract with the US gov for 150 million antigen test for $5 each, they work in 15 minutes. I doubt CEMI can compete with any of those areas (manufacturing capability, speed, price). 2. The company is incorporated in Nevada, bad. 3. They have barely ever made a profit in their operating history, like you said this isn't likely to change unless something happens. It's not particularly cheap and there is dilution risk.
But one interesting thing I came across is that this guy Norman Pessin owns 7% of shares as of pretty recently, and he is apparently an activist investor. It says "He also served on the Board of Governors of the National Association of Securities Dealers and was a director of the Nasdaq Stock Market." Also the new CEO has a background in private equity health care and worked at Abott.
that is interesting. I hadn't looked closely at the large shareholders or executive team. thanksDelete
There are many companies that develop Covid tests. In this sense the company is not so special. What I do not like is the low quality of the company, for example the negative cash flows, high debts and the long history of losses. It also does not seem to be favorably valued (Price to book of 2, EV / Sales of 2.3) and the Market Cap is too big. Highly distressed company based on Altman Z score.ReplyDelete
However, I like the chart (but I would not buy the stock).
In this case I'm thinking more about potential and where it has recently been and where it could go. I find 'quality' very hard to evaluateDelete
CEMI just put out a press release announcing their re-application of the test to the FDA. good timingReplyDelete
Yes that sounds interesting.Delete
By the way, I don't really know if an interesting product is important. Recently I bought Eve Sleep PLC and have achieved several 100% returns. The company from UK sells online sleep products. There is hardly a more boring business.
congratulations on that return!Delete
Have you actually never had the case that a stock was no longer tradable? That could be a considerable risk with very small stocks.ReplyDelete
An example: I hold stocks in the company MNC MEDIA INVESTMENT LTD, which is listed in Australia and is current in their reporting. Only a small part of the stocks is listed, the rest is held directly. I received the stocks due to a stock conversion. There are only 9 shareholders. That means there are no buyers for my "crappy" stocks at all. Last trade was in 2014! So the stock has currently a cero value for me.
yes I have just realized I'm in the same situation with my CUO stockDelete
Do you have an opinion on canabis companies? An example would be Captor Capital (CPTR). It is a tiny stock (MC of 7 Mio) with a P/B of 0.3 and a lot of cash. I like the chart. The stock was trading much higher not so long ago.ReplyDelete
see also here: https://www.nanalyze.com/2018/02/medmen-billion-dollar-marijuana-startup/
well that certainly fits the 'hype' theme of this blog post. I don't own anything cannabis myself. Hard for me to tell what is real versus a scammy fraud. I have not put in the time to learnDelete
With CEMI I see this potential for a hype spike on top of a real business that itself I think has potential to be priced much higher in say 5 or 10 years
so far CPTR worked out quite well. It did go from about 18 pennies to currently 47.5 pennies (return of 163%). Whether that will last is another question.Delete
Captor trades now for 1.8, so a 10x return. not bad :)Delete
Do you have an opinion about big tech stocks? These stocks have performed very well (e.g. just check the Nasdaq 100), because the profit growth is very strong. They also seem to displace other companies due to strong economies of scale. Basically, there is almost the complete opposite of your approach (buying very small, cheap shares). Will the dominance of these growth stocks and their excellent performance continue?ReplyDelete
I don't follow any big stocks so no, I have no opinion on that. Too many people fishing in that pondDelete
Hi Dan. How do you view the stock dilution at CEMI? Share count is not too high (20M shares) but they doubled the Share count in the last 10 years and had 1 split in 2013.ReplyDelete
Dilution is major risk in Bio shares. Do u think rate of dilution here is reasonable?
Hi Iota. I haven't given CEMI a lot of thought after selling out into a spike a couple months ago. I've just been watching the stock drop and will probably end up buying back in as it finds a base.Delete
The dilution and losses are a concern for sure. with many bio techs it's the question of catching fire before you run out of matches. I need to take a closer look
Thanks for the find. i was lucky to get in Monday near long time lows. Again Covid spike, but this time with order of 28 M for 2021 (Market cap ~45M). With the delta virus more can come and maybe working capital for another yearReplyDelete
by the way - it seems they screwed the shareholders again hitting the ATM agreement they announce on 19 July/ so i think they issued the PR and sold millions of stocks and crushed it downReplyDelete
does that surprise you? That agreement is why the stock went down to 2 right? And then it spiked as high as 7 within days so at least there was some good potential for gains.Delete
Any thoughts on this co. currently? Shares have been beaten down recently.ReplyDelete
I need to take a harder look. I do like the chart and how low it's gotten. worry here is dilutionDelete