Valuation Comparison
The reason I bought Geron at $7 a share on Friday morning were:
- Well publicized and catchy news (anti-aging, anti-cancer)
- Market had not digested the news of the finding (the stock has been down from 18), no real movement on Thursday in anticpation of the news relaese
- Lot of cash in the companies pockets (about $25 million in cash and short-term investments)
- Low float of the stock
- Low market-cap (70 M)
OK. How I wish I could get it right every time. I don't think the story has completely played itself out.
- Lot of small investors and brokers (they are no smarter collectively) will read about it by Monday
- The float is still small, unless insiders sold big-time on Friday.
- The stock has not reached its recent high of 18 yet. That makes people willing to buy.
- Shorts will avoid coming in big until just around $18
- The companies market cap is still only $150 M (explanation bvelow why I think that is small)
For comparison, let us look at other hot biotech companies (approximate nos)
Company, Market Cap, Revenues, Outstanding Shares
GERN,150M,A few M,10M
Advanced Tissues Sciences, 600M,10M, 37 M
Affymetrix, 700 M, 10M, 22 M
HGSI, 680M, 20M, 22M
Neoprobe, 250M, 2 M, 23M
Organogenesis, 350M, <5M, 18M
Given the crazy valuations above, a run up to market valuation of $250 M will not be a big deal ($24 a stock).
After all neoprobe only makes tests for cancer detection (valuation $250 M). The runup can be very fast due to relatively few outstanding shares.
The valuations above indicate that it is not necessary that the stock will definitely come down a lot from Friday's closing price in the near term.
Arun |
