If you have owned NeoStem, Inc (NBS) throughout the last month, then you have returned a gain over 30%, as it has become one of the best performing stocks of the last quarter. Yet the stock has been particularly volatile during the last year, but has recovered to trend higher as of late. The stock is trading at $0.56 and appears to be in a bullish trend. The question becomes will the stock continue to trade higher and add to its three-month gain of 65%?
First, will the stock trade higher? Long term, the stock is definitely presenting a high level of value. It is trading with a 60% one-year loss. A similar loss occurred to Sprint Nextel Corporation (NYSE:S) and Alcatel-Lucent (ALU); all three fell during the sell-off between the months of July and August in 2011, as a result of panic within the market, and simply haven't recovered the losses, despite vast improvements within each company. NeoStem has also completed a round of financing, which usually weakens a stock in the near term. The degree in which it's lost seems excessive, especially when you consider the optimism surrounding both its manufacturing and clinical segments.
Four weeks, ago NeoStem was in rally mode, but fell between the weeks of June 12 and June 22; the question is why did it fall? Surprisingly, a few people mentioned the fact that it was removed from the Russell indexes, which occurred the same weeks that the company fell from $0.55 to $0.41 per share. It is my belief that if it were not for it being removed, the stock may have continued its rally. Yet because the stock was being sold in the open market, it could not rally or build any level of momentum. This may explain why it fell, and why the stock has since recovered following the end of the Russell rebalancing period.
The real question investors have to ask themselves is what happens next? As a long-term investor, I believe in the future of cell therapies and the success of AMR-001. I personally plan to hold throughout the clinical development of AMR-001, and believe NeoStem is presenting significant upside potential for the long-term investor. However, short-term trade investors must expect periods of volatility, which occur with any and all developmental biotechnology companies at some point in their lives.
Back when I purchased the stock, my only question was regarding the sale of its Suzhou Erye generic business, which was completed last month. The company sold its 51% stake for $12.28 million in cash and eliminated over $37 million of debt, accounting for a total value of near $50 million. This allows the company to exit a Chinese business that is highly competitive and never reached the level of growth the company expected.
Now it can concentrate and focus all of its energy on its two core segments with the most upside potential that create the most shareholder value. Additionally, it can focus on its new, yet promising, VSEL technology. As it recently received a $600,000 grant, it appears as though the company plans to bring this technology to the forefront of its business strategy. The VSEL technology opens the door to a multitude of potential applications that could provide several revenue streams for the company in the future.
In a previous article, I discussed the chain of events that led to NeoStem trading lower by 60% over the last year. I explained that the company is much better positioned today than at any point in the last few years, and that the sale of its Chinese segment opens up a slew of new doors. Surprisingly, the stock did not trade higher following the sale of its generic business, as many people misinterpreted the full scope and impact of the divestiture.
I also believe the fact that it was being sold in the open market by the Russell funds played a big role in it being unable to sustain any level of momentum. Therefore, the current rally that is taking place in shares of NeoStem could be a reaction to the good news of the company selling its generic pharmacy, along with it having a much clearer strategic plan for growth.
I feel comfortable with this business and believe that if it were not for the Russell rebalancing, the stock would have continued its rally back in mid-June. Since all institutional selling is complete, the stock is currently trading higher to reflect its potential. An investment in NeoStem is an investment in the future of cell therapies and the company's lucrative cell manufacturing business Progenitor Cell Therapy (PCT).
I think the number of questions surrounding the company is declining, as the company's core businesses are no longer complex. It now has the clinical segment and manufacturing, each of which should grow with the cell therapy industry itself. Therefore, with the rebalancing period being complete and many questions being answered, I believe it is a stock worth a closer look with upside and future developments that should create a significant amount of shareholder value.
Disclosure: I am long NBS, ALU.