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.
Adagio Therapeutics Inc.
The first stock to consider is Adagio Therapeutics Inc (ADGI, Financial), a Waltham, Massachusetts-based biopharmaceutical developer of clinical-stage antibody-based solutions for infectious diseases to be commercialized in the United States.
The stock traded at $4.40 per share at Tuesday’s close, below the current NAV per share of $5.64.
Following a 78.91% drop that happened over the past year, the stock now has a market capitalization of $489.51 million and a 52-week range of $4.38 to $78.82.
This year, through a specific and faster-than-usual process, the company is applying to the U.S. FDA for approval of its Covid-19 monoclonal antibody product candidate, called ADG20, to prevent or treat the disease caused by the novel Cronavirus. As ADG20 continues to be evaluated in a Phase 3 study, efforts are being made to enroll more participants from the young and adult segments of the population.
The treatment is aimed at people who do not want to be vaccinated, people whose defenses are weakened by an illness and people who cannot receive oral treatment against the Covid-19 virus and its various mutations due to gastrointestinal intolerance.
The company is not yet generating any sales as it is still in the clinical phase. However, if the lead candidate is approved for use to treat Covid-19, the status would change from clinical to commercial. This could potentially trigger a strong recovery in the share price.
The company had a solid balance sheet as of Dec. 31, 2021. As of the quarter's end, it had $665 million in cash, more than enough to cover annual operating expenses, which are estimated to be between $240 million and $250 million. The company is not burdened by debt thanks to strong funding.
In the last three months, the stock received two hold recommendations, a neutral recommendation and an underweight recommendation from Wall Street. The average target price is $8.33 per share.
Kodiak Sciences Inc.
The second stock short-term investors could be interested in is Kodiak Sciences Inc. (KOD, Financial), a Palo Alto, California-based clinical-stage developer of treatments for retinal diseases.
The stock traded at $8.49 per share at close on Tuesday, down from the current NAV per share of $9.55.
Following a 92.88% decrease that occurred over the past year, the stock now has a market capitalization of $425.86 million and a 52-week range of $6.81 to $131.97.
Since the company's research has not yet resulted in a marketable product, the company does not make a profit but bears research and development costs.
The company is evaluating its lead product candidate, KSI-30, as a therapy to treat retinal vein occlusion associated with certain cancers and age-related macular degeneration.
From this research, the company should have top-line data before the end of July 2023, potentially leading to a strong recovery in the share price if the study results show a viable product.
To support the development of its product, the company can draw on its solid funding efforts, which have given it a cash balance of approximately $732 million as of December 31 2021, which is more than nine times higher than the total debt of $80 million. It also adequately covers operating expenses of approximately $265 million per year.
In the last month, the stock received two neutral recommendations, an equal-weight recommendation and an underweight recommendation from Wall Street. The average target price is $24.38 per share.
