InvestorPlace’s Larry Ramer recently wrote an interesting piece about Aptorum Group’s (NASDAQ:APM) rapid pathogen identification and detection diagnostics (RPIDD) technology. It got me thinking about whether APM stock was a buy-on-the-dip kind of opportunity.
Then, I read one of Larry’s paragraphs about the risks involved, which made me consider the options available in this interesting segment of the biotechnology industry.
“Unfortunately for APM stock, it does face competition. Multiple other companies have launched offerings that are similar to Singapore’s RPIDD development,” Ramer wrote on Oct. 22. “For example, Research and Markets reported that Guardant Health (NASDAQ:GH), CareDx (NASDAQ:CDNA) and Chronix Biomedical have all already stepped into the space.”
While there’s not a snowball’s chance in hell that I would put money into any of these stocks — I’ve got a bit of a phobia against biotech companies — that doesn’t mean investors with above-average risk tolerance shouldn’t consider the possibilities.
So, with this in mind, I’ll take a quick look at Aptorum, Guardant, and CareDx, putting my gambler’s hat on to come up with the best bet.
Wish me luck.
The Attraction of APM Stock
As they say, “A bird in the hand is worth two in the bush.”
In the case of Aptorum, the contract with the Singapore government is a bird in the hand. My colleague believes that the partnership gives it access to potentially leading-edge technology while also gaining an edge on its competitors in the Asian market.
In fact, Ramer did a back-of-the-napkin calculation of what a 10% market share in the global liquid biopsy market would mean for APM’s market capitalization. He concluded $600 million, or 7.7 times its current market cap, was a realistic amount of appreciation over the next five years.
I’d like to say the analysts have a beat on APM stock, but only two cover it. They both rate it a buy with an average target price of $13, although it’s hardly a quorum.
As for its financials, it did have $327,273 in healthcare services income during the first six months of fiscal 2020, 36% higher than a year earlier. Meanwhile, its operating expenses rose by only 7% over the same period.
However, it will need to continue issuing more shares of its stock to finance its operations. Of course, if you routinely invest in this kind of company, you’re more than familiar with the investment’s dilutive nature.
It seems InvestorPlace readers love penny stocks like APM. Despite the obvious risks, I’ve been asked to review many stocks in much worse shape in recent weeks.
That in itself is positive.
What About the Other Two?
Right off the hop, the fact Guardant Health has a market cap of $11 billion gives me considerably more confidence a bet on its efforts won’t necessarily be a case of throwing your hard-earned capital down the toilet.
A quick look at its Securities and Exchange filings shows that Softbank Group’s (OTCMKTS:SFTBY) Vision Fund sold 7.7 million Guardant shares in October at $102 per share, bringing the investment fund’s holdings to 6.3 million, good for a 6.4% ownership stake.
Softbank has been selling down all kinds of holdings to raise cash in 2020. This shouldn’t be taken as a negative. In fact, up 40% year to date, it’s understandable.
As for financials, it had revenue of $133.8 million in the first six months of 2020 and an operating loss of $89.5 million, but with over $1 billion in cash and marketable securities.
To me, this seems like a safer and arguably better bet than Aptorum.
The first thing I notice about CareDx is that it had a non-GAAP profit of $1.7 million in the second quarter of 2020 on $80.2 million in sales, most of it from its testing services for its AlloSure donor-derived cell-free DNA solution for kidney transplant patients, as well as its AlloMap gene expression solution for heart transplant patients.
On Oct. 7, CareDx announced preliminary sales for its third quarter that showed revenues increased 57% to $53 million from $33.8 million a year earlier.
I have to admit that I don’t know much about cell-free DNA beyond the fact that a study is currently being conducted to support the development of an early detection cancer test. Whether or not CareDx can benefit from this, I couldn’t tell you.
What I do know is that CDNA also appears to be a better bet than APM despite CareDx stock gaining 139% year to date.
Bottom line: I can’t tell you if Aptorum Group is the best bet among RPIDD names. What I can say is that you ought to consider these two alternatives before plunking down your hard-earned capital on APM.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.