Champions Oncology Inc (NASDAQ: CSBR)
Ok, so sometimes rules are made to be broken. In fact, in the past few decades I have admittedly broken a few, but nothing to write a book about. Most of my transgressions were comprised of fraternity pranks, not wearing sunscreen and, the big one… eating very large Whataburger meals before bedtime. Other than that, I’ve been pretty well behaved.
But, since I was the one that brought up the notion of rule breaking, I’ll tell you whats on my mind.
Ever since I wrote about Champions Oncology (CSBR) back in November, when the stock was trading at $1.54 a share, investors have appeared to hitch their bridle to the CSBR wagon, pulling the share price higher by over 49% since then, to a current price of roughly $2.30 per share. And, that has caused me to break a tenet of trading.
So, Soulstring, What Rule Did You Break?
Here’s the deal – I liked CSBR quite a bit back in November, but now, only about a month later, I am kind of falling for the stock in a big way. I know, I’ve written on several occasions to never fall in love with an investment, especially when that deep level of commitment can cost you great deals of money by allowing emotion to take the place of logic. But, with CSBR, since the dynamics keep changing, investors need to change as well.
Hopefully, most of you remember what I first wrote about CSBR. They are an emerging company that is so ripe with proprietary intellectual property that they have essentially set themselves apart from the competition. In fact, the barriers to entry are so high for new competitors that CSBR is in a position of envy to even the big pharma. CSBR has positioned themselves so well in the field of personalizing cancer care that several of CSBR’s largest clients in the previous quarter were, in fact, big pharma.
This won’t be the first time that the new kid on the block soon became the most popular kid in the class. For CSBR, the secret is getting out to the market, though, with institutional funds starting to gobble up shares. Several institutions are patiently building positions in the stock from levels that were almost non-existent just six months ago. Take Echo Lake Capital, for instance. They recently added quite heavily to their position, submitting a regulatory filing of their recent 635K share purchase of the stock, bringing their ownership position in the company to 5.8%. Hmm, they must be breaking the like/love rule as well.
What’s Not To Love At CSBR?
Listen, this is not a pump piece. Seriously, I am long on the stock and I believe in the future. But, I don’t provide investment advice, I’m simply sharing my joy about CSBR.
CSBR’s own actions can make the case for whether you want to buy the shares or not. For instance, for the period ending on and October 31, 2016, CSBR recorded record quarterly revenue of $4.5 million dollars, a 50% growth in revenue. CSBR booked even greater growth in its TOS segment, with a 59% revenue increase over the same prior period.
For the year, CSBR reaffirmed its revenue guidance of between $16M – $18M dollars. What makes each of those two stats even brighter is that CSBR only burns about $150K dollars per quarter; yes, I said $150K dollars and did not mistakenly leave out a zero from that number. CSBR has roughly $4.3 million dollars on hand at the end of the period, so assuming that CSBR continues to remain cash flow positive, they have enough cash to carry the business plan well into the next generation of product or service development.
Remember, too, that CSBR inked its largest single contract ever in the quarter, a $2M dollar deal from an undisclosed client. But, many suspect the same as I – BIG PHARMA!
The CSBR Science Is Amazing
I’ll boast some more about my new love interest. CSBR is a special player. The company is so cutting edge that its hard to explain. But, here is a short and feeble attempt at doing so, some of which I submitted back in November.
CSBR is able to implant disease or other client-specific illnesses in a pre-clinical setting to provide some initial and reliable data about a planned trial. No, mice can’t mimic humans precisely, however, CSBR is able to maintain the integrity of the targeted illness and offer a client the opportunity to treat the animal with multiple therapeutic treatments. Failing to find a meaningful treatment is bad for the mouse, but CSBR doesn’t feel the same regret.
CSBR is not affected by trial success or failure. CSBR is simply the conduit between, say, a pre-clinical trial and a planned phase I trial. They are a contract provider that has nothing at stake except the need to offer a top quality, 100% reliable, and scientifically sound study of the treatment. If a drug fails, the headline risk does not fall on CSBR’s shoulders. By that failure, the company can generate additional business from the client to test the next most viable option for treatment.
By utilizing CSBR’s TumorGraft technology platform, clients in the drug development field can lower the cost and increase the speed at which they can develop and deliver new drugs to market. All this without the glaring eyes of the FDA constantly looking over their shoulders.
What Now For CSBR, Soulstring?
I received two questions from readers asking if they had already missed the boat for CSBR. My response was flat out simple and rather direct. I told them that, in my opinion, the boat has not even left the dock. In fact, I think that the vessel is still gassing up at the pump.
CSBR is one of those stocks that I have some deep-seated comfort holding in a market that can potentially trade down 500 points on any given day. To be honest, I am searching out small and emerging companies that are well-funded, have a strong capital structure, and offer compelling science and technology to make them truly special. In this arena, I have found CSBR, ABEO, ATHX and IPCI, just to name a quad.
I believe that stocks of their caliber can survive a market sell-off based on their ability to hold value based on their own fundamentals. It also does not hurt that each of them are grossly undervalued, in my opinion.
Even better, though, is that they will most likely follow an uptrend if the market can catch a wave, especially needed in the continuously beaten down biotech sector. With all of these new record highs in the S&P and Dow, the IBB is still trading well down from its highs and has now been trading below $300 dollars for quite a long time. Except for a brief 8¢ eclipse of the $300 dollar benchmark two months ago, the IBB has traded well below $300 dollars per share since January of 2016.
I only bring up the IBB because, while it has become a magnet for some in the biotech sector, some stocks, like CSBR can act as the magnet’s kryptonite. Oh, stocks don’t go straight up, but good stocks will always outperform the market, especially those that are newly emerging stocks that are being pulled from behind the curtain.
CSBR’s Coming Out Party
CSBR has no reason to be shy. And whether investors were just unwilling to dig deep enough to see the value in the stock or they simply did not quite understand the science, CSBR is now being exposed to the investment world through 13F filings, and it is showing that investment firms that have a value in excess of $100 million dollars are liking CSBR almost as much as I am.
CSBR is not my only holding. However, I have now gone to an overweight position on the stock in my portfolio. I keep adding because I find less risk in CSBR than I do in a host of some of my other small cap positions. I trimmed here, added there, opened some, closed some. And, since I tend to not be an active trader, this end of year shuffling was uncharacteristic.
However, as investors use December to push stocks around in all directions, they do get a chance to take or add to positions at prices that may not exist shortly after the new year begins. While I don’t expect too much profit-taking at CSBR, I do expect that these accumulating investors are willing to sit patiently on the bid for now, allowing shares to be sold to them, rather than chasing the stock higher, which they did during the past two weeks.
After the new year, though, I expect that institutions will take charge of the stock and bid CSBR much higher. CSBR has only about 11 million shares outstanding with a trading float of under 6 million shares. So, eventually, the laws of supply and demand will take hold.
If CSBR follows through on its expectation to continue to remain earnings positive, the next leg higher may be substantial. As of now, I do not see any impediments to block that guidance. CSBR is booking revenue, has clear guidance into its revenue stream, and has spending controls in place that would impress Scrooge.
This much I am pretty sure of – if CSBR reports a back-to-back profitable quarter after the first of the year, I better be prepared to fend off the admirers and make sure that I am comfortable with my position, because I don’t want to chase CSBR higher, especially when I have ripe opportunity today.
But if a new load of investors take an interest in my little darling, CSBR, I can handle it.
I’m a product of the 1960’s and 70’s, so if more people want to join the love fest, then by all means let them come and join the CSBR party. I’ll keep the hot tub warm.
Disclosure: I am long CSBR and may purchase additional shares within the next 72 hours.
I wrote this article myself and it includes my own research and expresses my own opinions. I am not receiving compensation for it (other than from CNA Finance). I have no business relationship with any company whose stock is mentioned in this article.
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