At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.
And speaking of the best...
Self-injection, needle-free syringe maker Antares Pharma (ATRS +0.00%) has been undeniably one of the best performing stocks in the market this year, more than doubling in value over the past year. And yet, despite a stock price that's gone from less than $2 to nearly $4 a stub, one analyst thinks Antares still has room to run.
Yesterday, ace investment banker Jefferies threw its considerable weight behind Antares with an upgrade to "buy" and a new price target of $5 a share. As quoted on StreetInsider.com, Jefferies described Antares as an "innovator" in auto-injector needles, and one "transitioning from a device partner" (Antares has relationships with such giants as Pfizer (PFE +1.19%) and Teva Pharmaceutical (TEVA +1.01%)) to a commercial-stage drug company in its own right.
Indeed, just this week Antares submitted a new drug application to the Food and Drug Administration, seeking permission to market a self-injected, once-weekly form of methotrexate for treatment of rheumatoid arthritis, called "Otrexup."
The potential...
Jefferies isn't the only analyst out there that's hot on Antares' prospects. Elsewhere on Wall Street, multiple analysts agree that 2012 will be the company's last money-losing year, and Antares is poised to earn its first full-year profit in 2013 -- then to rapidly increase in profitability, perhaps hitting $1.64 a share in profits as early as 2016. ($1.64 is about half of Antares' own stock price, by the way).
Here at the Fool, analyst Selena Maranjian recently compared Antares' prospects -- favorably -- to those of popular biotechs Spectrum Pharmaceuticals (SPPI +0.00%), which is already profitable, and Affymax (AFFY +0.00%), which, like Antares, is expected to book its first profitable year in 2013.
...and the peril
And yet, this being biotech we're talking about, any investor considering an investment in Antares has to ask: What about the cash? Does Antares have enough of it to keep the doors open until promised profitability arrives?
Fortunately, the answer to that is a most emphatic "yes."
Unprofitable Antares may be, but unlike many early-stage biotechs, it's been extremely careful about husbanding its cash. Over the past five years, Antares has only once allowed annual cash burn to exceed the level of $10 million annually. Most years, it's managed to keep it down around $5 million to $6 million.
Trailing free cash flow at the firm inched back above $8 million over the past 12 months, but even at this level, the company's bank account -- plump with $30 million in cash, and not a lick of debt -- looks more than adequate to keep Antares in business until profits start rolling in next year. In fact, barring an explosion in cash burn from the "Otrexup" NDA, I'd say Antares has a margin of safety at least a couple years wide in which to begin generating cash from its new products.
Foolish takeaway
As a value investor myself, I'm usually loath to suggest investing in a company with no profits on record and no cash coming in the door. I also can't help but notice that Jefferies' record in picking health care equipment stocks like Antares leaves something to be desired. (If you examine our CAPS records carefully, you'll notice that Jefferies actually gets the majority of its health care equipment picks wrong ...)
That said, Antares' cash cushion, and the reasonable expectation of turning a profit in the immediate future, may justify taking a closer look at this one. Antares may lack profits, but at least the stock has potential.
