Penny stocks have a poor reputation, but the chance of finding a diamond in the rough keeps some traders coming back to them again and again. Thankfully, with a bit of critical-minded sifting through the endless dunes of forgettable small-cap stocks, investors can find a few worth considering.

BioDelivery Sciences International (BDSI) has the potential to be just such an unrecognized gem. The biopharma company is profitable, making headway against its competitors and expanding its revenue at a steady clip. Plus, its stock appears to be undervalued, and management is working on rewarding shareholders. In short, its shares are ripe for an explosion of growth that could double or even triple their value.

Three scientists standing in a laboratory bay work together to plan an experiment.

Image source: Getty Images.

It's still profitable to make painkillers

BioDelivery Sciences has two approved medications, both oriented around helping patients with chronic pain, either by addressing their pain directly or by easing the gastrointestinal side effects of common opioid medications. Its drug Belbuca for constant and severe chronic pain is administered using the company's specialized drug delivery system -- a small polymer film that the patient affixes to the inside of their cheek for the duration of treatment. In contrast, its pill Symproic helps patients taking opioid medications to deal with opioid-induced constipation.

Belbuca's share of the long-acting opioid medications market is currently about 4.5%, which isn't too impressive -- until you consider that in Q4 2017, Belbuca accounted for only 0.5% of the market. In Q1 2021, it grew its market share by 25% year over year. And according to management's estimates, Belbuca has captured a minimum of 6.7% of the total volume of new prescriptions for drugs in its class since Q1 2020. So, market penetration is proceeding swimmingly, and the pandemic didn't much slow down Belbuca's march forward.

Symproic has also seen its market share rise slightly over the last two years, reaching 12.6% of the total prescriptions for opioid-induced constipation therapies as of the first quarter of 2021. But, the drug only accounts for $14.7 million of the company's $156.5 million in annual net revenue as of 2020, so it isn't a major driver of growth in comparison to Belbuca.

Belbuca's growth in market share has been tremendous for BioDelivery Sciences' top and bottom lines, if not for its stock price. Revenues have increased by more than 95% in the last 3 years. And, since Q1 2020, trailing-12-month earnings before interest, taxes, depreciation, and amortization (EBITDA) have skyrocketed by more than 233%.

Earnings aside, there's another key reason that BioDelivery Sciences' stock price could be on track to double. Management is planning to buy back a not insignificant portion of its outstanding shares. In Q1, it spent $6.2 million on buybacks out of a total of $25 million authorized late last year. So far, that hasn't helped the stock much, but a bump could still be forthcoming, as most of the cash hasn't been deployed yet. 

BDSI Revenue (TTM) Chart

BDSI Revenue (TTM) data by YCharts

Valuation may be the key

Suffice it to say that BioDelivery Sciences' strong performance hasn't convinced the market that the stock is worth owning. That makes this $363 million market cap company an opportunity for deep-value investors on the hunt for bargains.

BioDelivery Sciences' valuation multiples are quite low, but there's no identifiable business problem that might be keeping them depressed. Its price-to-earnings ratio of about 15.3 is far below the pharmaceutical industry's average of 34.54. Likewise, its price-to-sales ratio of around 2.4 is less than half the industry average of 4.91. In sum, buyers are getting more for their buck than they normally would with a stock in the same industry.

The future looks bright, and it could be even brighter

This company is still growing rapidly, and it has no significant headwinds on its horizon. But as favorable as its earnings growth and valuation may be, the one thing that this stock still needs to send its price soaring is a catalyst of some kind.

As things stand currently, investors may be skeptical about the company's prospects for growth -- it has no drug development pipeline to speak of, nor has it announced any major new initiatives recently. Per CEO Jeff Bailey's remarks in the first-quarter earnings report, "we remain on track to drive long-term shareholder value, and are actively considering potential business development opportunities." But in the absence of specifics, it's hard to be confident about the company finding new sources of revenue any time soon. 

I still think that share buybacks combined with the stock's current undervaluation and the steadily rising sales of Belbuca could cause BioDelivery Sciences' stock price to double in the next couple of years. And if management announces a major new initiative, I expect shareholders will be rewarded handsomely. If not, the stock will probably do well anyway -- provided that the market finally notices it.