Osteotech (OSTE – current price $3.50) is an interesting investment at current levels. The company fits all my normal criteria, namely, that recent results have been abysmal and the business is losing money. Plus the stock trades near all-time lows. On the positive side, however, OSTE has a cash-rich balance sheet with no debt, sports an EV/Sales of about 0.75, has a large revenue base, and operates in what I consider an attractive long-term market, biologic solutions for regenerative medicine. Additionally, recent communications from the company suggest that new products are gaining a bit of traction in the marketplace, revenues have stabilized, and cash losses have been eliminated (at least in the 4th quarter). Finally, recent buying of shares by activist funds and the company’s adoption of a shareholder rights plan, indicate that some sort of shareholder battle is brewing. My feeling is that if new product revenues continue to accelerate and management comes under pressure from activist investors, the shares could rise nicely this year as speculation surfaces about some sort of M&A transaction involving OSTE. Even without the M&A speculation, the shares could rise as financial results improve throughout 2010, when compared to a horrendous 2009. Solid year-over-year comps could bring in quant funds, and other mindless computer-based investment funds, into the stock.
Disclosure: Affiliates of Envoy Global Research, and its principals, own shares in OSTE. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.
[...] We first wrote about OSTE in January at $3.50 per share. [...]