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  • ENZY: WHEN THE BLEEDING WILL STOP?

    Enzymotec Ltd. (ENZY), together with its subsidiaries, develops, manufactures, markets, and sells bio-functional lipid ingredients and final products in North America, Europe, Asia, Australia, New Zealand, and Israel. It has seen its stock sliding continually on the downward trend since the beginning of 2014. In its early days as a public traded company, ENZY had hovered around $16 - $20 per share, before riding on a rally all the way to $33. However, starting in March 2014, ENZY's stock encountered several price corrections, see the graph as follows.

    (click to enlarge)

    Today, after ENZY released its 2Q results in Form 6-K, its stock price saw another price correction, dropping from $14.98, as closing price on 08/04/2014, to $9.11, as closing price on 08/05/2014. The primary catalyst for this drop is due to weaker net revenue and the operational challenges experienced in the market, as pointed out by Dr. Ariel Katz, Enzymotec Ltd.'s President and CEO in the same Form 6-K. Company offered revenue breakdown based on its operating segments. Nutrition segments of ENZY has contributed only $10 million in net revenue for the three months ended June 30, 2014, as compared to $16.5 million in net revenue a year ago. This is roughly 40% off on the year-to-year basis.

    From ENZY's financial statement point of view, it had no major movements. ENZY's cash position, as of June 30th, 2014, was at $69 million, 50% of total assets of ENZY. No major intangible and goodwill assets recorded, coupled with low long-term debt liabilities at 10% of total assets. ENZY has good position in terms of cash and liquidity. On the inventory and manufacturing side, ENZY has put in more dollar in the six months ended June 30, 2014, as compared to the same period a year ago. Management of ENZY has emphasized in the latest Form 6-K that "Second quarter gross margin (equity method) increased over 1,500 basis points to 62.0% from 46.5%", however, would the 60% of gross profit margin continue as a trend throughout the rest of year, this remains an uncertainty, given that ENZY will probably under pressure to increase sales.

    Nevertheless, given the stronger than expected headwind facing ENZY, there are still some institutional investors interested in this company. Galam, one of the principal shareholders before ENZY's IPO, probably still has 4.6 million shares on hand, after selling 1.6 million shares in March 2014 at $28 per share. XT Hi-Tech Investments (1992) Ltd. also, one of the principal shareholders before ENZY's IPO, might still have 1.8 million shares on hand, after selling 1 million in March 2014. If these two institutional investors didn't sell any more shares since March 2014, they account for roughly 30% of total outstanding shares. In the meantime, Visium Balanced Master Fund, Ltd had bought 1.1 million shares on March 10, 2014, according to this Schedule 13G. Paulson & Co. Inc. had also increased their stake from 1.7 million shares to 4.1 million shares on March 10, 2014, according to this Schedule 13G.

    Bottom Line: ENZY has suffered more than one price correction since the beginning of 2014. Management of ENZY has given a cautious signal in its operating activities going forward, however, some institutional investors still very hold onto this stock. Investors should keep it on the watch list.

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

    Tags: ENZY
    Aug 05 9:46 PM | Link | Comment!
  • BOTA: Time To Regroup

    Biota Pharmaceuticals, Inc. (BOTA), a biopharmaceutical company, focuses on the discovery and development of anti-infective products in Australia. Its stock price has dropped from $3.21 on July 31st, 2014 to around $2.29 on Aug. 1st, 2014, a more than 25% dip on a single trading session. Historically speaking, over the last 5 years, BOTA has been on a downward slide trend for a while. With a reverse stock split of 1-for-6 in Nov. 9th, 2012, BOTA's stock price has consistently stayed below $5 per share, except a temporarily rise with the general market uptrend in the beginning of 2014.

    Right now, it stands at around $2.30 per shares.

    From its financial statement point of view, BOTA recently raised $26.8 million by issuing 6.7 million shares at $4.30 per share, according to this Form 10-Q, in January 2014. The total number of outstanding shares, as of September 20, 2013, was 28,423,987 and therefore, the new 6.7 million shares represented around 20% of total number of outstanding shares post-January 2014. Combined with virtually no long-term debt liabilities and stable current liabilities, BOTA's financial condition is in good shape. In terms of cash outflows, BOTA has carefully built up its cash position without large cash payouts. For last two years, excluding the cash raised from stock issuing and acquired from mergers and acquisitions, BOTA has historically used up cash on the quarterly basis from $2 million to $14 million. It varies within this range and this would determine how long the runway would probably be in the near term, given the current cash position BOTA holds.

    The primary catalyst contributing to today's sell-off is result of its influenza treatment failed to meet the main goal in a mid-stage study, according to this Yahoo Finance Article. Also, back in April, 2014, BOTA received a notification from the U.S. Department of Health and Human Services (NYSE:HHS) office of the Assistant Secretary for Preparedness and Response (OTC:ASPR) and Biomedical Advanced Research and Development Authority (BARDA) that pending a decision regarding the outcome of a recently completed In Process Review (IPR) of the BOTA's contract for the development of laninamivir octanoate, ASPR/BARDA has issued a Stop-Work Order notifying BOTA to discontinue work on a number of activities under its contract, according tothis Form 8-K.

    Bottom Line: BOTA had seen price correction at least twice for the last six months. Investors should pay attention on how BOTA would turn around in moving its drug product portfolio forward.

    (click to enlarge)

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

    Tags: BOTA
    Aug 01 3:23 PM | Link | Comment!
  • VIPS: An Exception In Flash Sale Industry?

    Vipshop Holdings Limited (VIPS), through its subsidiaries, operates as an online discount retailer for various brands in the People's Republic of China. Since its IPO in May 2012, with $5.50 per share, it has multiplied more than 35x and reached $201.50 per share just not long ago. There are at least several drivers that contributed to this rally from the fundamental analysis point of view.

    First of all, VIPS has seen growth in its net revenue, net income and number of active customers. VIPS's business model is based on online flash sales, which offer new sales events daily with a curated selection of popular branded products at deeply discounted prices in limited quantities during limited time periods, creating the element of "thrill and excitement" associated with VIPS' unique customer shopping experience, according to VIPS's Form 20F filing. On the income statement side, VIPS has accumulated $1.70 billion in total net revenue for year 2013, a 145% jump from $692 million in 2012. COGS has risen from $537 million in 2012 to $1.28 billion in 2013, a 139% increase on year-to-year basis. VIPS's gross profit has stayed at around 20% to 25% since 2011. VIPS has turned profit the first time in 2013 by reporting net income of $52 million, roughly 3% of total net revenue. This is one of the drivers that had propelled its stock price to jump on March 5th, 2014. On the cash flow statement, it is shown that much of the share-based compensation expenses were concentrated in VIPS's co-founders, especially $63.9 million related to founders' shares out of $73.9 million in 2011. VIPS has also increased their appetite for inventory on hand from $86 million in 2012 to $160 million in 2013. Another upside is with advance from customers, VIPS had collected $75 million in 2013, a 86% increase from year 2012.

    As seen in its U.S.-equivalent online falsh sale sites, i.e. GRPN or Zulily, active customers who have purchased goods from these flash sale sites more than once per year are what drive the underlying growth. VIPS has grown its active members from 4.1 million in 2012 to 9.4 million in 2013. According to VIPS' Form 20F, it has the following statement on repeat customers.

    "Our total number of repeat customers was 0.9 million, 2.6 million and 6.0 million in 2011, 2012 and 2013, respectively, representing 60.6%, 63.9% and 63.8%, respectively, of the total number of our active customers during the same periods. Orders placed by our repeat customers accounted for 91.9%, 93.2% and 93.0%, respectively, of our total orders during the same periods."

    So the success of growing revenue and active customers for VIPS depends heavily on the numbers of orders placed by repeat customers. The prospect of growing repeat customers would reflect one of the concentrated risks that VIPS face, given that its stock price is valued at Price/Sales at 5.34, as comparable to Zulily's P/S at 5.71 and relatively higher than GRPN's P/S at 1.61, according to Yahoo Finance.

    (click to enlarge)

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    Bottom Line: Flash sale model seem to have much room to grow in China, however, the gradually saturated and easily-replicated nature of businesses in the flash sale industry might start to put constraints on profit margins and its stock price.

    Tags: VIPS
    Jul 28 7:12 PM | Link | 1 Comment
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