A Great Discovery Call from three Market Setting Firms
A few days ago, a small $340 million company Enanta Pharmaceuticals, Inc. (NASDAQ:ENTA) filed its IPO, and is now receiving a number of bullish outlooks from firms JPMorgan, Lerrink Swan, and Credit Suisse. The strong outlooks are based on the company’s HCV development pipeline; a market that analysts believe could reach $20 billion by 2020. Obviously, judging by the outlooks, analysts appear to be anticipating successful trials from the company, a company with a very large pipeline.
Prior to today’s upgrade, I had never heard of this company, I simply let it slip through the cracks. But now, I am on the Enanta Pharmaceuticals, Inc. (NASDAQ:ENTA) bandwagon. The company has more than $40 million in cash, reducing the likelihood of financing, has collaborations with Novartis, and its lead product ABT-450 is being developed in multiple Phase 2 & 3 trials (with a partner). So far, in early studies, there has been nothing negative regarding ABT-450 and with protease inhibitors being a hot area of biotechnology, I consider its $340 million market cap to be cheap. As a result, great calls by the three analysts covering the stock.
In my book, Taking Charge With Value Investing (McGraw-Hill, 2013) I discuss how to assess the opinions of analysts, and how to use them to your advantage. Typically, there are two types of calls: those that follow the trend and those who call regardless of the trend. It is important to distinguish between these two groups, and to not follow the performance that a call creates, but rather read and incorporate the notes as part of your research. Then, when you are able to find inconsistencies between value and valuation you will be better prepared to capitalize on the opportunity.
Brian Nichols is long ENTA. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix