It's pure speculation to trade/invest in companies like CHTP. Startup biotechs will often go out of business before they reach their goals. Many can go for a decade (or more) without making a dime. ICPT had less than 2 million in revenue last year but today it has a $5 billion market cap because the product they created addresses a $10+ billion niche...(came public around $18/share and today traded at $245-290)
These are probably not for you, bruwin, as your focus on value would (essentially) be inappropriate to use when looking at biotech startups.
Many biotech startups use the market as a constant source of funding, which continuously dilutes the initial investors. I can show you company after company that went public for $10 to $20/share only to see the stock crater below $1, when they failed to reach their goals.
The approach we use when dealing with biotechs is to cast a wide net, knowing that some will blow up and others will either be worthless or fail to achieve there targets. We try to "cash out" quickly when we have a solid gain, leaving "free" shares for long term speculation. For example, buying 1,000 shares at $10 and selling 850 at $12, removing our original capital and riding along with the 150.
Not the approach many would take but it has worked extremely well for us. Our net cost on CHTP is down to about $3/share after today's buy. We'll most likely bail if it gets anywhere below $3.50 and we'll lick our wounds if it drops below there while we're not able to execute a trade. Rarely will we put more than 1% of our investment base into the speculative phase (initial purchase), so even when it works out, we end up with a tiny "free" portion relative to our total portfolio.
I hope that helps to explain how we look at companies like CHTP. As mentioned a couple weeks ago, we have a position in CLDX that was up 800% using this strategy. Depending on the stock and our view of it, we may simply hold or take some off the table at any time. We let some go in the high 30s last year....fwiw. Many stocks we'll follow for years before even trying to take a position.
When a stock moves against us, we've tightened up our stops so that we don't lose too much these days. Mostly, we keep moving up our stops if the stock moves north but if it reaches an established target price, we'll take out our capital and leave the "free" shares. We'll review "free" shares periodically to see if we want to keep the investment as is. Many times, we'll pull some out of the free stock and buy a similar company within that sector to diversify. |
