There are some investors who buy U.S.-listed stocks that are trading below their liquidation value because they believe there is a lot to gain in these stocks after the market reprices shares to near or above their liquidation value.
In theory, should the company encounter financial difficulties leading to bankruptcy, these shareholders could still benefit from the liquidation value distribution, which is expected to be higher than the purchase price. The liquidation value of these so-called net current asset value stocks is calculated as "current assets minus total liabilities."
Thus, short-term investors could be interested in the two companies listed below, as their stock prices are trading below their net current asset value (NAV) per share.
Freeline Therapeutics Holdings plc
The first stock to consider is Freeline Therapeutics Holdings plc (FRLN, Financial), a Stevenage, U.K.-based biotechnology developer of gene therapies for hemophilia A and B, Fabry disease and type 1 Gaucher disease.
The stock traded at $1.13 per share at Friday's close, below the current NAV per share of $4.82.
Following a 93% drop that happened over the past year, the stock now has a market capitalization of $40.47 million and a 52-week range of $1.09 to $16.43.
Amid the company's product pipeline, treatment with FLT180a for male adult patients with hemophilia B has significant potential to achieve a functional cure. That means the company could soon transition from a clinical-stage developer to a drugmaker and start reporting sales, which could take its stock price to much higher levels than it is now.
Given the encouraging results of previous trials in which FLT180a demonstrated a significant reduction of symptoms while being generally well tolerated by patients, this product of Freeline Therapeutic is on track to move into the pivotal phase 3 trial in less than a year. Thus, it could get FDA approval ahead of expectations. In the meantime, any progress in the FLT180a pipeline could trigger a significant uptrend in the stock price.
Hemophilia B is a congenital bleeding disorder caused by a lack of a specific clotting factor. Symptoms include frequent spontaneous bleeding, which can become abnormal with even minor injuries. Because bleeding into joints also occurs in some cases, the disease can cause permanent joint damage. Fortunately, hemophilia B is not a common disease in the world's population, but it is fatal if not treated properly.
Eventide Asset Management, LLC, Eventide Healthcare & Life Sciences Fund and CHI Advisors LLC lead the group of the company's top fund holders, with 9.73%, 6.30% and 5.24%, respectively, of shares outstanding.
On Wall Street, the stock has a median recommendation rating of buy with an average target price of $11.57 per share.
The second stock short-term investors could be interested in is AVROBIO Inc. (AVRO, Financial), a Cambridge, Massachusetts-based clinical-stage developer of single-dose therapies for patients suffering from rare diseases, including Fabry disease, Types 1 and 3 Gaucher disease, Pompe disease, cystinosis and Hunter syndrome.
The stock traded at $1.50 per share at close on Friday, down from the current NAV per share of $4.33.
Following an 87% decrease that occurred over the past year, the stock now has a market capitalization of $65.48 million and a 52-week range of $1.50 to $14.28.
AVROBIO Inc.'s lead product candidates, designated AVR-RD-02 and AVR-RD-04, are currently in phase 2 clinical trials to evaluate them as effective and safe treatments for patients with type 1 Gaucher disease and cystinosis, respectively. Both trials started in 2019, and primary study outcomes should be available between the third quarter of 2023 and the first quarter of 2024. Until then, any update that fuels hope of a cure could result in a significant bounce in the stock price.
Gaucher disease is a rare genetic disorder in which lipids build up in certain organs, such as the spleen and liver, due to the lack of a specific enzyme.
Cystinosis is a rare genetic disorder that can cause serious symptoms and lifelong implications due to the abnormal accumulation of certain amino acids in many parts of the body.
Science is focused on improving the standard of care therapy for both, as the goal is to improve patients' life expectancy and quality.
JPMorgan Chase & Co and BlackRock Inc. are the leaders amid the company's top fundholders with 10.39% and 7.92%, respectively, of shares outstanding. Federated Hermes Inc. is in the third position with 5.95%.
On Wall Street, the stock has six buy and three hold recommendation ratings with an average target price of $8.88 per share.