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Jonathan Poland
Jonathan Poland
Articles (505)  | Author's Website |

Short Squeeze on Corcept Therapeutics

30% of the float is sold short, but the company keeps growing

March 06, 2019 | About:

There’s one word investors won’t hear often when talking about small-cap biotechnology companies - profitable. In fact, on the list of 504 stocks in the space, very few actually turn a profit. Only 20 are making money and priced under 6 times sales. And only three of those have over 20% of their float sold short. Corcept Therapeutics Inc. (NASDAQ:CORT) is one of them. It’s the most liquid from a trade perspective and the only one with zero long-term debt.

In the last five years, the stock has gone from $4 to over $25 and now sits just above $12 a share, giving it a market capitalization of $1.4 billion. The company’s price multiples are currently well below its five-year average, but they’re also below industry averages as well. With Corcept set to earn upwards of $1 per share in 2019, it is probably fairly valued at its current cap.

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So what’s the catalyst for future growth? Research and development. The company spent $75 million in the last 12 months on research and development, but that accounted for just 30% of gross profit since it enjoys a 97.9% margin rate, which is a big reason it is profitable while others in the space are not.

The company has one drug on the market, Korlym, which is a cortisol receptor blocker mainly used for adults with Cushing syndrome who have type 2 diabetes. Furthermore, it has more than 10,000 patients on Korlym and sees many times that number of patients that could benefit from the drug

Corcept Therapeutics also has ongoing clinical studies for other diseases impacted by cortisol dysregulation, including another Cushing syndrome drug, Relacorilant, which is in Phase 3 and will be completed by the end of 2020. The company also has numerous drugs in development across oncology, addiction and ophthalmology, any of which would add another strong revenue stream to its top line.

At this point, the company has a rock solid financial position with high returns on equity, gross margins and zero debt. Corcept is profitable and growing. Last week’s earnings release showed year-over-year revenue growth of 25%, up to $66.8 million, and GAAP earnings of 18 cents per share. That’s why the stock is worth a flyer.

More importantly, sellers have sold over 20% of the shares outstanding short, which would take close to 10 trading days to cover, something investors should watch out for as Corcept continues to develop its pipeline.

Disclosure: I am not long or short CORT.

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About the author:

Jonathan Poland
I spent more than 15 years helping DIY investors earn over 30% a year. Today, I help business leaders take those insights and build better assets. I rarely write about stocks that I own. Thanks for reading. Do your own analysis before investing.

Visit Jonathan Poland's Website


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