Analysis of a Ten Bagger Stock: New River Pharmaceuticals

by: Stockerblog

You may occasionally see ads for investment newsletters that say they can predict ten bagger stocks.

A ten bagger is a stock which has a price that increases ten times its original value, or increases by 1000%. There are plenty of stocks out there that have become ten baggers over long periods of time; but how about short periods of time, such as five years or less? Here is one that was better than a ten bagger in less than three years:
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New River Pharmaceuticals Inc. (NRPH) closed at 54.71 on December 29, 2006. If you had bought the stock when it went public on August 9, 2004 at 7.36 [which on a split adjusted basis was 3.68], your return would have been 1387%. This is way more than a ten bagger - it’s a fourteen bagger and in only two and a half years.

How is it possible for a stock with no earnings, a negative book value per share, and an outrageously high price sales ratio of 64, to have performed so well? On top of that, the company’s Chairman/CEO/President was just granted a bonus of $924,000. The answer: It’s a biotech company, and if a biotech produces the right drug or drugs, the company’s stock will skyrocket.

New River has been working on developing a drug for the treatment of attention deficit hyperactivity disorder, an opioid derivative for the treatment of acute pain, a drug for hypothyroidism, and a drug for the treatment of chronic pain. Once their drugs receive FDA approval, their sales should take off. But can their sales, and hopefully their resulting earnings, keep this price trend up?

The average annualized return on this stock since it went public is about 190% per year. It’s hard to believe that this return can continue.

If you think this ten bagger is an aberration, here are a few more that did it in five years, January 2002 to December 2006:

  • Cognizant Technology Solutions Corp. (NASDAQ:CTSH)
  • Zoltek Companies Inc. (NASDAQ:ZOLT)
  • Smith Micro Software Inc. (NASDAQ:SMSI)
  • GeoGlobal Resources Inc. (GGR) [This one is a 37 bagger]

  • Disclosure: Author does not own any of the above.

    NRPH 1-yr chart

    nrph chart

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