Frontier Tech Investor: an update on our stocks
16th June 2016 |
Earlier in the week, I received an email from a Frontier Tech Investor subscriber with a handful of questions about some of the stocks in our portfolio. Rather than reply individually, I wanted to share my answers with everyone – as there were some valid questions raised.
Here’s the note I received:
Just a few thoughts set out below:
1. SolarWindow has assets of$400k and liabilities of $2.5 mil. Do you think they will encounter any problems in continuing to trade? How’s their order book looking?
2. Acorda Therapeutics has a current P/E of 90 last time I looked not 66. Their Beta is very high at 2.44. Any comments?
3. Cyberdyne’s cash has halved over the last 12 months, and although profits are up 200% they are operating at a loss, currently.
I’d appreciate your views on the foregoing, I’m fine with speculative investing, but I do try to narrow my margin of error.
Yours, Aye
First of all, thank you for taking the time to write to us and for sharing the results of your due diligence. Let me take your points in order.
1. SolarWindow has assets of$400k and liabilities of $2.5 mil. Do you think they will encounter any problems in continuing to trade? How’s their order book looking?
SolarWindow is a development stage company, so it does not yet have customers. That’s one of the key reasons it’s in the “moonshot” section of our portfolio – it’s early stage, high risk, high reward.
When I last talked with the firm it confirmed other statements that it’s moving into the manufacturing and commercialisation stage of its project. That is likely to result in one of a number of scenarios.
The first is that it becomes a takeover candidate, since the technology has real world applications.
The second is it finds a partner with manufacturing capabilities that can help it get to the next level, which would likely result in at minimum a joint venture.
The third is that it finds commercialisation of its transparent solar cell technology is too difficult or is overtaken by even faster innovation from another source.
Of these three potential outcomes, the first two would be bullish for the stock while the third would result in the difficulties you highlight with continuing to trade without a fresh funding round.
The only way we can conclude which of these outcomes is most likely is to monitor the price action, since we are obviously not privy to insider information. The share price has pulled back somewhat over the last couple of sessions, but it has been steady overall against a background where much larger companies have experienced significant selling pressure – not least SunEdison.
It is possible that a mean reversion is now underway which could see the price fall back towards the trend mean, represented by the 200-day moving average. However a sustained move below it would be required to question the overall bullish environment.
2. Acorda Therapeutics has a current P/E of 90 last time I looked not 66. Their Beta is very high at 2.44. Any comments?
As you are no doubt aware, P/E ratios are a factor of both price and earnings so they tend to move around a lot. At present the historic P/E is 42.62 while the estimated figure for the end of this year is 34.8. Ampyra is the company’s primary cash cow, but the growth story is in the development of its late stage neurology drugs – not least for Parkinson’s disease, which it believes is a billion dollar market.
The share has been ranging above $25 since March and is now back testing that level again. A bounce similar to those posted before will be required to signal value hunters are coming back into the market.
3. Cyberdyne’s cash has halved over the last 12 months, and although profits are up 200% they are operating at a loss, currently.
Cyberdyne spent a great deal of money developing its product, and the majority of analysts expect it to move into profit next year. Of course nothing is set in stone, but generally speaking the best time to think about buying any share is before it announces a move into profits rather than after.
The pace of technological innovation is only speeding up, and a race is on to get exoskeletons into the marketplace. Since I wrote the original recommendation for Cyberdyne I’ve seen a great deal of news flow talking about other companies attempting to bring out competing designs. To me at least, that signals how powerful a story this emerging technology is.
However, Cyberdyne has an important advantage. It has a product in the market, the others don’t. Cyberdyne has received permission for the use of its exoskeletons in the healthcare sectors of Japan and Germany while it is waiting on US approval. No other emerging company has the same breadth, and as you say it does have earnings and it is growing strongly.
I agree with you that it is necessary to do one’s due diligence in order to raise one’s level of comfort with investing and trading. However it is equally important to monitor the crowd, because you will be buying from someone who does not share your view and eventually you will sell to someone else who does not share your view. That’s why I monitor price action. It’s the only way of deciphering when you are more likely to be right than they are.
Best,
Eoin Treacy,
Investment Director, Frontier Tech Investor
