Although market cap is a more important metric to consider when determining the future value of a company's share price, it's not uncommon for investors to think that a lower stock price represents value or the opportunity for gains. Sometimes that's correct, but not often.
In other words, there's usually a good reason that a stock is valued below $5 per share, although that doesn't mean all companies with low share prices will be stuck there forever. While the risks may be higher for these companies, I think investors should at least keep an eye on the developments for biopharma Idera Pharmaceuticals (IDRA), precious metals miner Yamana Gold (AUY), and exoskeleton suit pioneer Ekso Bionics (EKSO 5.50%).
Does this biopharma pipeline hold promise?
Idera Pharmaceuticals has taken shareholders for a volatile ride in recent months. Positive developments for its lead oncology drug candidate, IMO-2125, have provided much of the firepower, while a massive stock offering caused shares to crater in late October. That's pretty common in early stage biopharma, where the excessive costs of drug development usually require difficult financial decisions for companies, although releasing promising data can be followed by an advantageous capital raise.
Although the company has done little in its nearly 30 years of existence, investors today see multiple reasons for optimism in the early stage pipeline. IMO-2125 is leading the way. The drug candidate is a combination of Idera Pharmaceuticals' toll-like receptor (TLR) technology and the blockbuster Yervoy from Bristol-Myers Squibb aimed at treated metastatic melanoma, which is a skin cancer that has spread to other parts of the body. Data from a phase 1/2 trial showed that half of the 10 evaluable patients had a clinically meaningful response.
While 10 patients isn't a large sample, the U.S. Food and Drug Administration recently granted the drug candidate Fast Track Designation. That could prove beneficial for IMO-2125 pending the outcome of a pivotal phase 3 trial that will be initiated in the first quarter of 2018.
The small-cap biopharma has a host of other early and midstage clinical programs in its pipeline, including an RNA-based therapy program partnered with GlaxoSmithKline aimed at treating renal diseases. The collaboration is expected to settle on a drug candidate in early 2018 -- providing another potential near-term catalyst. For now, future potential remains the stock's most valuable currency, but success in the clinic will be the ultimate decider of the company's fate.
Ramping gold production
At a market valuation of $2.5 billion, Yamana Gold is by far the largest company on this list. That said, it hasn't been a very good stock to own in recent years. In fact, it hasn't created a lick of shareholder value in recent memory. But investors may soon be singing a different tune thanks to the Cerro Moro mine.
The Argentine gold and silver asset is slated to come online in 2018 -- and it's going to be massive. Yamana Gold expects the mine to boost total annual gold and silver production to 1.1 million ounces and 14.5 million ounces, respectively, by 2019. That would mark a 17% and 206% production increase, respectively, in just two years. Couple that with an increasingly efficient capital structure and investors can probably expect earnings and cash flow to be quite a bit higher in the next few years.
Of course, investors would be forgiven for second-guessing management, especially given the track record, but development of Cerro Moro has proceeded on time without impediments. It really does seem that management is on the right track. In fact, it plans on using the expected performance boost from mine to reduce the company's leverage ratios, and as a springboard to invest in future growth projects. Yamana Gold may not have been an investor's best friend this decade, but it wants to make amends in the next three years or so.
Exosuits for factory workers
Ekso Bionics is an intriguing stock because of its potential to deliver on one of sci-fi's greatest fantasies: exoskeleton suits. Okay, so, the company's products aren't trying to create superhumans, but they may be on the cusp of gaining traction in the workplace.
The tiny company was recently vaulted into the limelight after Ford Motor Company announced it had conducted a pilot program using one its leading industrial products. The automaker tested an exoskeleton suit called the EksoVest designed to aid workers performing tasks overhead. For instance, holding a heavy drill above your head for several hours a day. The exoskeleton suit lessens the load by supporting a worker's arms, which reduces fatigue and could have the potential to reduce work-related injuries over the long haul.
Whether or not a formal supply agreement results from the pilot program is impossible to predict, but Ekso Bionics certainly could use a big win to gain traction for its industrial products. Product revenue for the first nine months of 2017 totaled just $4.9 million -- mostly comprised of exoskeleton suits for medical applications -- while operating loss totaled $23.7 million. That played a big role in the company issuing a going concern at the end of 2016, although cutting staff and offering shares has alleviated that through the end of 2018.
The good news is that industrial products turned in a gross margin of 31% in the first nine months of this year -- higher than medical products. The bad news is a big company such as Ford could drag out any decision to use the EksoVest for years -- and Ekso Bionics can't afford to wait that long. For now, I'd continue watching this stock. Even if a big partnership or supply deal is announced, there will be plenty of financial implications to sort through. In other words, you won't be missing out.
What does it mean for investors?
Stocks trading under $5 are usually at that price point for good reason. The investment is probably risky and/or management has diluted the number of shares outstanding over time. For that reason, it's important to always consider the downside of investments, especially in companies with low market caps. Nonetheless, I'm intrigued by the future potential of Idera Pharmaceuticals, Yamana Gold, and Ekso Bionics, although I certainly wouldn't make them a major part of my portfolio.