Baupost Group leader Seth Klarman (Trades, Portfolio) revealed on Monday he trimmed his stake in Paratek Pharmaceuticals Inc. (PRTK, Financial) by 35.17%.
The guru’s Boston-based hedge fund manages about $24.7 billion in assets. It searches for value among a broad range of opportunities, including stocks, distressed debt, liquidations and foreign securities. With a long-term horizon, the renowned investor typically seeks securities trading well below his estimate of intrinsic value and waits for the price to rise.
According to GuruFocus Real-Time Picks, a Premium feature, Klarman divested of 842,212 shares of the Boston-based biotech company on Nov. 30. He now holds 1.5 million shares, which represent 0.05% of the equity portfolio. The stock traded for an average price of $2.93 per share.
GuruFocus estimates Klarman has lost 73% on the investment since establishing it in the fourth quarter of 2014, when the stock traded around $18.14 per share.
The clinical-stage biopharmaceutical company, which focuses on developing treatments that target infectious diseases and other difficult-to-treat conditions, has a $102.19 million market cap; its shares were trading around $3.04 on Tuesday with a price-sales ratio of 4, which GuruFocus noted were both near multiyear lows.
The median price-sales chart shows the stock is trading below its historical average, suggesting it is undervalued.
In November, the company released its third-quarter financial results. It posted an earnings loss of $1 per share, which topped Wall Street’s estimates of a loss of $1.06 per share. Revenue of $3.9 million also beat analysts’ expectations of $3.6 million.
Weighed down by ballooning long-term debt, Paratek’s financial strength was rated 2.8 out of 10 by GuruFocus. The extremely low Altman Z-Score of -3.86 warns the company is in financial distress and could be at risk of going bankrupt. In addition, the Sloan ratio of -43.69% indicates it has poor earnings quality.
The company’s profitability did not fare much better, scoring a 3 out of 10 rating on the back of negative margins and returns that underperform over half of its competitors. It also has a Piotroski F-Score of 4, which implies operating conditions are stable, and a one-star business predictability rank. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per annum over a 10-year period.
With 4.66% of outstanding shares, Klarman is Paratek’s largest guru shareholder. Though they have significantly less exposure, Chuck Royce (Trades, Portfolio), Robert Bruce (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio) also see value in the stock.
Portfolio composition
Klarman’s $8.5 billion equity portfolio, which was composed of 31 stocks as of the end of the third quarter, is heavily invested in the communication services sector at 34.89%.
Other biotech stocks the guru holds as of the end of the three months ended Sept. 30 are Translate Bio Inc. (TBIO, Financial), Atara Biotherapeutics Inc. (ATRA, Financial), Theravance Biopharma Inc. (TBPH, Financial), Akebia Therapeutics Inc. (AKBA, Financial) and Gossamer Bio Inc. (GOSS, Financial).
Disclosure: No positions.
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