Biolife Solutions Digesting Big Gains; More To Follow

Summary

• Examined under the microscope, Biolife Solutions' chart action has been frustrating.
• Through the telescope, however, we see normal "digestion" and the second leg-up of a measured move in the making.
• Fueling the upcoming move: high revenue growth, high margins, and a customer base in its infancy.
• Adding to future growth: the ramping up of prior acquisitions and the promise of more in the future.

Fundamentally, Biolife Solutions Inc. (NASDAQ:BLFS) is stronger than ever: year-to-year revenue growth of +29%, Gross Margins of 72%, successful recent acquisition of two tissue storage/transport companies that will add to the top and bottom lines, an ever-increasing list of customers, and positive net income - a feat difficult to achieve for most rapidly growing biotechs.

And yet, the strengthening fundamental position has resulted in seven months of choppy sideways price action, trying the patience of all Biolife Solutions investors, myself included. So what gives?

Investment Thesis: The sideways price action is not indicative of fundamental problems for Biolife Solutions. On the contrary, the fundamental picture shows a young company in a young industry positioned for explosive growth; and when viewed from a multi-year perspective, the technical price chart shows a healthy uptrend that is merely digesting some phenomenal gains.

Biolife Solutions provides biopreservation media, intelligently monitored transport products, and automated thawing systems. Source: biolifesolutions.com

Impressive Revenue Gains

Quarterly revenue of tiny biotechs (Biolife Solutions has a marketcap of $360 million) is by nature sporadic and seasonally affected; and therefore, revenue is best viewed from a year-to-year basis. A quick glance at Biolife Solutions multi-year revenue growth is highly encouraging; we see strong steady growth:

Source: marketrealist.com

A Customer Base in its Infancy

But, what is most exciting is not the impressive revenue trend of the past, but the promise of explosive revenue growth in the future. CEO Mike Rice explained in the August 8, 2019 Q2 earnings call that nearly all of the company's revenue comes from customers whose products are not FDA approved, but rather still in clinical trials. "The big step changes in revenue," he said, "are still out in the next three to five years."

Biolife's many customers ("Products embedded in nearly 400 customer applications.") are themselves in the infancy stage of their life cycle; when some of their cell and gene therapy products are FDA approved and they begin commercial sales, demand for Biolife's tissue and transport services will rise explosively. Indeed, the cell and gene therapy market is itself very new but growing rapidly; as of Q2 2019, 1,069 clinical trials in this industry are currently underway. In the same Q2 earnings call, CEO Rice summarized the opportunity:

So, we've got a wonderful growth opportunity ahead of us. And, we're certainly not resting on our laurels. We continue to fill the pipeline with early stage companies.

The consistent past revenue growth gives the CEO's words credibility, and his prognostication that the upward ramp in revenue will take place in the next three to five years is promising. Couple this with Biolife's enviable high profit margin (predicted to be 69% to 70% in 2020, and then better yet as the Astero and SAVSU acquisitions are fully integrated), and accelerating positive net income ($0.12 EPS in 2019 est, and $0.41 est in 2020) and I come to the conclusion that Biolife Solutions is a compelling multi-year speculative biotech long position.

A Tale of Two Acquisitions, and More Coming

Biolife Solutions is growing revenue organically and via acquisitions. In April 2019, it acquired Astero, a company that makes automated thawing devices, which vastly improve the survivability of cellular tissue during the thawing process; and in July, Biolife finished the acquisition of SAVSU, a company that makes high-tech, cloud-connected tissue products that provide physical protection and temperature stability to cellular tissue during transport. With these two acquisitions, Biolife now has three bases covered: biopreservation media, high-tech transport "evo systems," and automated thaw. While impact to the 2019 top line is modest - $1-2 million in revenue for Astero and $0.5 million for SAVSU, Biolife is just beginning to tap into these companies' revenue potential. As CEO Rice stated in the Q2 report, "We're just getting our ...sales and marketing engine ramped up."

It appears that Biolife intends to continue actively growing via acquisitions. In September, Biolife invested $1.5 million into Sexton Biotechnologies, a company that makes "advanced packaging solutions and human platelet lysate (HPL) serum-replacement media," along with rights to acquire Sexton at a future date. That same month, Biolife also invested $1 million dollars in IVexSol, a gene therapy media company that produces lentiviral vector. In Biolife Solutions, we have an aggressively growing company, and if managed correctly, share price should follow.

Peering into the Technical Analysis Crystal Ball

Can Ol' Miner's crystal ball lead us to profits? Source: waymarking.com

When looked at through the microscope, aka the one-year BLFS chart, what we see is a very frustrating seven-month sideways slide, with the share price today some $4 lower than the March high of $22.5. What happened? Technically speaking, after an impressive run from roughly $9 to $20, a healthy period of consolidation, a "double bottom base," formed from April 2019 through the beginning of October. However, the handle drooped abnormally low and indeed undercut the base of the double bottom pattern. See the one-year BLFS chart below:

Source: StockCharts.com

The blame, in my opinion, is not fundamental company weakness, but rather arbitrary market rotation. I follow a lot of biotechs, and nearly all of them showed a similar slide from September to October; birds of a feather, unfortunately in this case, flock together. This slide is visually quite clear in the chart below of the Medical Supplies Index:

Source: StockCharts.com

So, should we "fish," i.e. wait for the price to return to former highs, or "cut bait" and sell? The rosy fundamental picture I have explained in this article, combined with the five-year BLFS chart below, gives us our answer. What we see in the five-year chart is a phenomenal 700+% gain, followed by a well-deserved year-long consolidation rest period (the two blue arrows). Note the triangular tightening of the rest phase (green dotted lines). I postulate that the triangular consolidation will breakout to the upside, and a second leg up will follow, completing the "measured move." Here's the chart:

Source: StockCharts.com

For those considering initiating a position, there are two potential buy points. The first option is to buy on a close above both the 50 day and 200 day moving averages - a move widely considered as a sign of strength. A second more conservative option is to wait for a strong, high-volume close above prior resistance at $21. See the chart below:

Source: StockCharts.com

Final Thoughts

Given its impressive revenue growth, turn to profitability, and technical price movement over the last five years, and given the rapidly growing nature of the cell and gene therapy industry as a whole, I believe Biolife Solutions to be an excellent multi-year investment candidate in the speculative small biotech space. It is important to note that Q3 earnings results will be released soon, after market close on Tuesday, November 12, 2019. While I anticipate another strong quarter, predicting the short-term price reaction to Q3 results is virtually impossible, and therefore it would be prudent to wait for the earnings results to post before initiating a position. With luck, the market will respond favorably to the Q3 results, vaulting the price above the double bottom pattern, and we can confidently open a long position.

Source: Andythelion, Pixabay

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in BLFS over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.