At the end of last week, Dextera Surgical Inc (NASDAQ:DXTR) put out its third quarter 2017 earnings and – on the back of the news – has taken a real hit to its market capitalization.
Prerelease, Dextera shares went for around $0.22 a piece. By the close of play on Friday this had dipped to $0.17 and – at the end of the day on Monday – shares went for just $0.16 a piece.
Overall, that’s a decline of somewhere in the region of 27% on the numbers.
Oftentimes, and especially at this end of the biotechnology sector, we see an overreaction to financial reporting and, in turn, companies sell off more than is perhaps warranted by the numbers they release. In many cases, this is driven by the fact that a biotechnology company at this end of the market very rarely puts out a positive bottom line and, at the same time, generally isn’t generating revenues from a commercialized product. These “headline” figures are all many people read when catching up on the previous day’s news and catalysts and, as a result, sentiment is artificially weak.
Whenever this is the case, there is an opportunity to pick up some cheap shares ahead of a rebalancing of the stock in question and, subsequent to, a recovery to at least preannouncement pricing.
With Dextera down by the above-mentioned close to 30%, we can ask the question, is this one such example of this type of opportunity?
Put simply, we think so, yes.
For those new to Dextera, the company is a biotechnology play that is working on the development and manufacture of minimally invasive stapling devices for use in surgical procedures primarily in the United States, but also in certain parts of Asia and Europe.
Its lead product, what’s called the MicroCutter, has had a pretty good response from its target sales base but Dextera has struggled to ramp up production and output despite reasonable demand, or, at least, it has struggled to do so while keeping check on operational costs.
For this reason, Dextera is in something of a bind right now.
Basically, the company needs to sell itself or find a partner to help it commercialize the MicroCutter device to the point where it can become self-sustainable and it needs to do one of these two things very later. Otherwise, bankruptcy is a real possibility.
So why are we suggesting that a stock that might go bankrupt near-term could be worth an exposure take right now?
Well, because the device that is peddling, the above-mentioned MicroCutter device, is an incredibly strong piece of technology and it’s one that really does have the potential to carve out a large market base for itself in the right hands. Whether this means in the hands of Dextera or, alternatively, in somebody else’s hands, remains to be seen. Regardless, however, longer term, there is some value to be realized from the technology and, whichever route Dextera decides to take, there is a good chance that the value it realizes will dramatically outweigh its current market capitalization of just $6 million.
Sure, this is a speculative thesis and it’s one that we really do have to label as a punt given current market conditions. With that said, however, and based purely on the value of the company’s lead technology and remaining product portfolio (much of which is in development), we think that it could be a punt worth taking for any of our more risk tolerant readers.
We are looking for any updates that suggest progress towards a partner or a buyout (or even an asset sale) as driving some upside momentum in the stock over the coming months and into the start of 2018.
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Image courtesy of Rotary Club of Nagpur via Flickr
Disclosure: We have no position in DXTR and have not been compensated for this article.