One scenario which I see re-occurring is where relatively small bio-techs enter the screen with little or no real earnings, but for some reason are on the screen because of some one term earnings event.
Some of the companies include: cytk, onty, qlti, ptie, infi and npsp. I have never bought stock in any of these as I have believed they do not have a steady earning stream going forward.
But what is hard to understand is that they are generally doing well. Are they just "lucky", or is the fact that they had some sort of recent windfall and a strong balance sheet a sign that they are bio-tech companies with promise? Of those 6 (I picked them as they are the ones in my mechanical portfolios), they are up an average of 68%.
Thoughts?
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Seems to me that the question is whether these are "good" companies as JG would say. I have to think the answer is no. The basis for concluding a company is good includes its ability to give their owners a solid return. Another company throwing money at a biotech is not really indicative of the quality of the business that is receiving the money. It's simply a speculative play by another company. It's quite subjective. The stock may do well because the infusion of the money itself may cause folks to jump on the wagon (if someone with a lot of money thinks the company is a good deal, then it must be, right?!?) but it doesn't appear to be based on the fundamentals of the company itself.
I do not invest in these companies either because they are purely speculative. I mean, how much is a company that loses money worth?
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