3 Oversold Biotech Stocks Undervalued By Levered Free Cash Flow

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Includes: ACAD, CBPO, MNTA
by: Kapitall

One way to search for potentially undervalued firms is by using the ratio levered free cash flow/enterprise value. Companies with high ratios may be undervalued.

Levered free cash flow is the free cash flow after deducting interest payments on outstanding debt. Enterprise value is the sum of the firm’s value from all ownership sources: market cap, outstanding debt, and preferred shares. From this value we subtract cash holdings because, in the event of a takeover, that cash would be used towards the takeover price.

We used this ratio to screen for potentially undervalued stocks among the universe of biotech stocks that are technically oversold, with RSI(14) below 40.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.



We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.

Do you think these stocks should be trading higher? Use this list as a starting-off point for your own analysis.

List sorted by RSI(14).

1. Momenta Pharmaceuticals Inc. (NASDAQ:MNTA): Specializes in the in the characterization and process engineering of complex molecules. Market cap of $602.78M. RSI(14) at 32.09. Levered free cash flow/enterprise value at 10.41% (levered free cash flow at $35.66M and enterprise value at $342.49M). The stock is a short squeeze candidate, with a short float at 16.66% (equivalent to 7.39 days of average volume). The stock is currently stuck in a downtrend, trading 24.12% below its SMA20, 28.98% below its SMA50, and 28.4% below its SMA200. The stock has performed poorly over the last month, losing 27.64%.

2. China Biologic Products, Inc. (NASDAQ:CBPO): Engages in the research, development, manufacturing, and sale of plasma-based pharmaceutical products. Market cap of $173.99M. RSI(14) at 37.14. Levered free cash flow/enterprise value at 15.16% (levered free cash flow at $17.88M and enterprise value at $117.96M). The stock is a short squeeze candidate, with a short float at 6.28% (equivalent to 44.65 days of average volume). The stock is currently stuck in a downtrend, trading 11.78% below its SMA20, 20.2% below its SMA50, and 47.87% below its SMA200. It's been a rough couple of days for the stock, losing 11.1% over the last week.

3. ACADIA Pharmaceuticals, Inc. (NASDAQ:ACAD):
Focuses on drug discovery and clinical development of novel treatments for central nervous system disorders. Market cap of $63.36M. RSI(14) at 39.30. Levered free cash flow/enterprise value at 20.62% (levered free cash flow at $4.75M and enterprise value at $23.04M). This is a risky stock that is significantly more volatile than the overall market (beta = 2.5). The stock is currently stuck in a downtrend, trading 8.43% below its SMA20, 15.64% below its SMA50, and 26.43% below its SMA200. It's been a rough couple of days for the stock, losing 7.69% over the last week.

*Levered free cash flow and enterprise value data sourced from Yahoo! Finance, all other data sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.