4. Avid Bioservices, Inc. (NASDAQ:CDMO)
Number of Hedge Fund Holders: 17
Avid Bioservices, Inc. (NASDAQ:CDMO) is a contract development and manufacturing organization that provides process development and current good manufacturing practices (CGMP) focused on biopharmaceutical drug substances derived from mammalian cell culture. It is one of the top immunotherapy stocks to invest in.
On June 30, RBC Capital analyst Sean Dodge kept an Outperform rating on Avid Bioservices, Inc. (NASDAQ:CDMO) stock and lowered the price target to $22 from $32, noting that the company’s commercial activity has remained strong with the backlog rising 30%, though its initial guidance is building in a bit more conservatism to account for greater macro uncertainty.
At the end of the second quarter of 2022, 17 hedge funds in the database of Insider Monkey held stakes worth $82.7 million in Avid Bioservices, Inc. (NASDAQ:CDMO), compared to 15 in the previous quarter worth $108 million.
In its Q2 2022 investor letter, Laughing Water Capital, an asset management firm, highlighted a few stocks and Avid Bioservices, Inc. (NASDAQ:CDMO) was one of them. Here is what the fund said:
“How Cheap is Cheap Enough?
Consider the case of Avid Bioservices (NASDAQ:CDMO), a large molecule, small batch Contract Drug Manufacturing Organization that will be familiar to all but our newest partners, as we owned shares from 1H 2018 until all but exiting our position in the low $30s in Q4 of 2021. Since that time, shares have declined precipitously as the company is both a “growth” stock and in the S&P Biotech ETF (XBI), which has declined ~36% YTD to quarter end. However, in my view Avid Bio is a baby with the bathwater, and we once again made Avid Bioservices a large position during the quarter.
First, unlike most “growth” stocks, Avid Bioservices is not a “disruptor.” You don’t have to make any blind assumptions about total addressable market (TAM), customer acquisition costs (CAC), or churn. There is very little risk of “garbage in, garbage out” when modeling Avid’s future. Rather, Avid’s assumed growth is tied to building additional manufacturing capacity. In my view, it is a much easier task to understand the dynamics of building an additional manufacturing facility than it is to understand the dynamics of alleged TAM, potential CAC, and unknown churn.
Second, unlike most biotech stocks, Avid is a real business, not a binary bet on whether or not a drug will meet its hoped-for end state. Lastly, and most importantly, Avid Bio has one characteristic that staunchly separates it from other high flying growth stocks and biotech stocks that have been punished by the market: it is set to gush cash in the not-too-distant future.”
