Editorial StaffInvestors are always on the lookout for the best strategy to find the right stocks. And that can mean turning to the experts, finding ‘those in the know,’ and following their lead. But who to trust?
One logical place to look is on the inside, at the opinions of corporate officers, the insiders, whose access to their company’s workings and information gives them a much sharper view than is available to any old internet researcher. Insiders’ trading activity has long been recognized as a sound clue toward stock performance.
This was clear to George Muzea as long ago as the early 80s. Muzea once held a role as a market advisor to investing legend George Soros, and has been following insider activity for most of his career. “Insiders are basically value investors. They buy into price weakness and sell into price strength,” Muzea noted.
Revance Therapeutics (RVNC)
We’ll start with Revance, a leader in cosmetic medicine for both aesthetic and therapeutic purposes. The market here is substantial – dermal fillers, one of Revance’s chief products, are the second-most performed minimally invasive aesthetic cosmetic procedure – and the US market for facial aesthetic procedures is estimated at $2.2 billion. On the therapeutic side, there is a $2.3 billion global market for neurotoxin – mainly botox – use. Revance has a strong presence in both fields.
The company has several products approved and on the market. Revance’s main product line, as noted above, is in dermal fillers; its RHA Collection of fillers brought in $18.3 million in revenue during 3Q21, out of a total top line of $19.7 million. Revance’s revenue in the quarter was up by 418.4% on the same period a year ago, and for the first nine months of 2021, the total revenue of $51.8 million compared favorably to the $4.2 million from the same time in 2020.
It should be noted that Revance’s Q3 revenue numbers came in just under Wall Street expectations. The top line had been forecast at $20.1 million. EPS on the other had was reported at a net loss of 87 cents per share – which was better than the 97-cent net loss expected.
So Revance has marketable products with increasing demand – all to the good. But the stock is down 50% this year, and a look at the charts shows that most of that loss came in mid-October. The company’s stock took a massive 39% hit on the 18th of that month, when the FDA sent a Complete Response Letter (CRL) in response to the Biologics License Application for daxibotulinumtoxinA (daxi). The BLA sought approval for daxi as a treatment for moderate to severe glabellar (frown) lines; the CRL explained why the FDA cannot grant that approval at the current time.
Revnance is already planning its response to the letter, through a Type A meeting with the FDA. These meetings are the standard response, and are intended for pharma companies to gain clarity on what is required for the company to move forward with the requirements for approval in alignment with regulatory needs. The meetings are normally scheduled within 30 days of the request.
The drop in share price has not discouraged Mark Foley, the President and CEO of Revance, from increasing his holdings on November 29. He purchased 40,000 shares of RVNC stock, and paid $516,000.
Covering this stock for Piper Sandler, David Amsellem is also bullish on the company’s prospects. The analyst has an Overweight (i.e. Buy) rating for the shares, and his $29 price target implies a one-year upside of ~104%.
“Given continued favorable dynamics associated with the facial injectable market (i.e., increasing usage of facial injectable products across a range of demographics), in addition to our previous physician checks that are suggestive of a receptive audience for both of RVNC’s facial injectable product lines, we believe that peak U.S. facial injectable product sales for RVNC of well north of $500M are realistic,” Amsellem opined.
That Wall Street generally remains optimistic on Revance is clear from the breakdown of recent stock reviews. These include 7 to Buy against just 1 Hold, for a Strong Buy consensus rating. Shares are selling for $14.19, and their $24 average price target indicates room for 69% appreciation by the end of next year.
CareDx (CDNA)
Next up is CareDx, a healthtech company with a fascinating niche. The company is focused on care for transplant patients, from initial lab work seeking matches to follow-on surveillance after organ transplantation. CareDx has been working to improve transplant outcomes since it was founded over two decades ago.
CareDx has several products on the market, ranging from precision lab services to noninvasive surveillance to administrative software, all designed to streamline the transplant process and improve safety and long-term health for patients. These services brought in $75.6 million worth of revenue, a company record, and the 8th consecutive quarter of sequential revenue increase in the company’s latest financial report. The Q3 top line was up 41% year-over-year.
So you’d expect that CareDx would be riding high. But the day after the earnings release, October 29, the stock fell 27%, and CDNA shares are down 42% for the year to date. What happened?
The answer lies with Federal investigatory actions. Included in the quarterly report, but rather deeply buried, was a disclosure of not one, but two, Federal investigations into CareDx’s activities. The Department of Justice (DOJ) issued a civil investigative demand (CID) requiring the company to comply with a False Claims Act investigation. This relates to company business practices in relation to kidney testing and phlebotomy services. In addition, there is a subpoena pending from the Securities and Exchange Commission (SEC). The subpoena covers matters similar to the DOJ demand, and also covers records of ‘certain accounting and public reporting practices.’
No one likes to hear about Federal investigations, least of all investors. But it’s early in the process, and for now, at least, it’s impossible to tell where these Federal demand letters will go.
On a note of interest to investors, CareDx’s Chief Financial Officer, Dhingra Ankur, made a purchase of 5,000 shares, spending some $211,600 on them, on November 24, well after the Federal demands were issued. As CFO, Ankur is in a position to know the exact contents of the Federal investigation notices, making this purchase even more interesting.
Craig-Hallum analyst Alexander Nowak believes that the investigation waves will fade. In his recent note, he writes, “While details around the Civil Investigative Demand (CID) remain limited, fines from past CIDs range from $2-80M assuming there is any wrongdoing, and management noted many CIDs simply fade away without action. Our one FOIA request into the CID was denied and we await information from the second. As was true on the earnings call but completely overlooked, management was positive on 2022… With CDNA now trading as one of the least expensive lab names (6.5x 2022 EV/rev vs. average 10.6x), we think the Q3 questions are overblown…”
To this end, Nowak puts a Buy rating on this stock, and his $106 price target suggests a robust upside potential of 152% for the coming year.
Overall, the four recent analyst reviews on CDNA break down 3 to 1 in favor of Buy over Hold, resulting in a Strong Buy consensus rating. The stock’s average price target of $98.67 implies a one-year upside of 135% from the current trading price of $41.98.
Source: Yahoo Finance
