The people surprised by the selloff post-positive FDA news in $TMDX and $NNOX must not have been shareholders in $MYOV over the past 4 months
Joking aside, there's a lesson to be learned here for some.
With the big positive catalyst now absorbed by the market (whether you think it was properly priced in or not), it seems marginal shareholders now want to focus on cash flows.
All have enormous potential, but the first positive quarter
of FCF for each is currently projected to come in the following periods:
$NNOX: early 2023
$MYOV: late 2023
$TMDX: late 2022
Accumulating shares in the interim should pay dividends (figuratively now but possibly literally down the line) provided the FCF expectations are met. Mechanically, as the positive FCF years approach, shares will rise sharply as that positive FCF is discounted less heavily.
A quick example showing this for $MYOV (name I know best of the 3 above) using Cowen's estimates (Current PT = $34, well below Evercore's street-high $55 PT):
Current EV: ~$1.25B
2025 FCF: $591M
2028 Peak FCF: $1.55B
Myovant faces the issue in that without a strong pipeline, drug maturity + patent expiration results in a terminal value close to 0
Nanox and TransMedics might face competition eventually, but their terminal value is certainly > 0 assuming FDA approval.
Quickly pulling an average FCF multiple for biotech stocks of ~13x (not the most accurate comps but good enough for this exercise for $MYOV) gurufocus.com/industry_overv…
In 2025, $MYOV would trade at an EV of ~$8B
In 2028, using a 7x multiple to account for drug maturity, $11B
Should $MYOV be worth $8B now?
No, but as we approach 2025, assuming Relugolix gets approved for uterine fibroids in June (very likely) and endometriosis in late '21/early '22 (data looks good but less certain than uterine fibroids), shares should trend pretty sharply upward
Similar arguments can be made for $NNOX, $TMDX, and really any other company with a large TAM that is investing/ burning cash now to generate those large out-year FCFs (SaaS companies are a great example of this).
The big risk in investing in these situations is that small changes in growth trajectory or timing of FCF down the line can drastically affect current valuations
Looking at Myovant again:
If in 2025, it does $300M in FCF (simulates a 1 year delay in the current estimates) and gets a 5x multiple due to terminal value risk, then the EV becomes ~$1.9B, representing a 7.6% CAGR over 5 years, which given the risk, is not a great return to justify buying in here.
I know lots of my followers already know how to do these calculations, but this is a good exercise for those new to investing who want to get a sense for why their holdings might not be moving on good (or bad) news.
TAMs, growth, and 2025 estimates are fine, but discount rates, risks to the above estimates, and terminal value risk are examples of reasons why expectations might need to be tapered in the short-term
Every company is unique, and medtech ( $NNOX and $TMDX ) is not biotech ( $MYOV), but just noting the similar sell-the-news events only a few months apart.
• • •
Missing some Tweet in this thread? You can try to
force a refresh
Scotiabank goes from $13 CAD -> $11.50 CAD ($9.10 USD)
Raymond James goes from $14 CAD -> $12 CAD ($9.55 USD)
Waiting to see their model updates once I get the reports, but to me the PT adjustments are due to it being irregular to have a PT >100% above the current price and not have the stock as one of your top picks. (as Stifel's 18 CAD PT was)
The average of the PTs is still 52% above the current share price so there's still a lot of optimism from the analyst community.
Per TIKR, the Q3 topline estimate rose 2.6%, but so far Q4 estimates have declined 4%.
$BC acquires 6 New York are Freedom Boat Club locations. These clubs have >600 combined members and membership has grown at a near 30% YoY rate for the past 3 years
Knox comes from her previous role as Global Head of HR for the Mixed Reality / AI Platform & Cloud Security / Identity division at Microsoft (8,000 person division) and previous held executive HR roles at Twitter, Sony, CBS Interactive, PepsiCo, Disney, and Verizon.
Knox will focus on continuing to align compassionate and ethical AI as a foundation of LivePerson's culture.
Ethics in AI is an increasingly important area as use cases become more sophisticated, so I like that the head of talent development is directly focusing on this space.
$GDDFF $FOOD $FOOD.T with a big topline beat (all metrics in CAD)
Revenues up 71% YoY to 100.7M (9.75% beat off of the 91.75M estimate which was adjusted down from 93.75M last week)
Gross margin up 14 bps to 30.44% (more on this below but in-line with consensus)
Delivered positive Adj. EBITDA of 0.5M (backing out SBC this becomes 0.9M EBITDA vs. -3.4M in Q2 2020)
FCF of 0.3M without adding SBC vs. -7.3M in Q2 2020
$163M in cash on the balance sheet (33% of market cap)
The most important note from the call:
Gross profit impact from 50% off grocery promo in January was 3-5M. This implies gross margin would have likely been > the Q1 32.3% number had the promo not happened (lower revenues + the above impact)
$BC with two positive developments in the past week.
First, they tripled the size of their i-Jet Innovation Lab at the University of Illinois to support an acceleration of the Company’s ACES (Autonomy, Connectivity and Electrification) strategy
This isn’t going to have an immediate impact but shows Brunswick has an eye on the future of boating in the areas of electrification and autonomous driving
The bigger development was Freedom Boat Club (FBC) establishing its first company-owned location in Europe (this one is opening in Portsmouth, UK in Summer 2021)
FBC seems to be the primary way Brunswick is hoping to combat cyclicality.