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  • Cyanotech; High Biotech Growth Company Discounted By The Market 0 comments
    Jul 24, 2014 7:25 AM | about stocks: CYAN, AMGN, BIIB

    World leader in microalgae-based, high value nutrition and health products Cyanotech Corp (NASDAQ: CYAN) has announced its fourth quarter and fiscal year 2014 results.

    For fiscal year 2014, net sales reached $28.91 million, a 5 percent increase from the previous year. Gross profit came in at $11.56 million, or a gross profit margin of 40 percent. Despite the increase in revenue, the company registered a net loss of $195,000, or diluted loss per share of $0.03.

    Management admitted that the fiscal 2014 results have been challenging for the company. Financial performance has been driven by various factors. Astaxanthin production came in at below expectations due to unusually high levels of wind, rain and overcast skies in the second half of 2014. The good performance in Nutrex offsets the disappointing performance in the Astaxanthin business. In addition to that, higher legal costs the company incurred during the year from its ongoing litigation dampened the overall results.

    Focus On the Long Haul

    Despite the relatively disappointing performance, the company has implemented various initiatives that will improve its Astaxanthin production. This includes a strain productivity program, increasing the density of the algae, and process change to reduce the space necessary to produce Astaxanthin.

    In an interview last year, Cyanotech President and Chief Executive Officer, Mr. Brent Baily, believes that their distinct competitive advantage is that the company is vertically integrated in a business that needs technology and capabilities. Hence, it would be difficult for a new entrant to compete with an entrenched leader such as Cyanotech.

    In addition to that, the company is implementing a massive awareness campaign on both Spirulina and Astaxanthin, which will eventually translate to better sales for the company over the long run.

    Below the Radar

    The company is under the radar from big market players. In fact, the company's market cap of $27 million will not move needles for a billion dollar portfolio. Further, analysts do not have an interest in covering the stock since it would not be a good target for an investment banking deal.

    Mr. Baily also admits that the market has misunderstood its business and that has resulted in the mispricing of its shares. As a result, the market has clearly discounted that it grew its business from $17 million to $28 million over the last few years. The company is also banking on the superiority and potency of its vitamins and supplements. This will be a key growth driver in the years to come.

    At present, shares are trading at 89 percent of its sales and 1.21 times its book value. Peer companies in the biotech space such as Amgen, Inc. (NASDAQ: AMGN) and Biogen Idec Inc. (NASDAQ: BIIB) is valued at 4 and 8 times book value respectively. With strong growth potential in the coming years, Cyanotech share price will definitely catch up with these biotech companies' valuations.

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: CYAN, AMGN, BIIB
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