Business looks solid, owner-operated, produces a critical product in the pharma value chain (not getting distrupted anytime soon). Company adds capacity based on customer demand, vertically integrated.
Want to discuss the risks:
Only major risk i see is shift towards orals for biologics. Why is the market so much worried about that?
Reading about this transition, the oral is in fact beneficial to the company's growth.
Patients start with orals if they had needle phobia but orals have limitations, it works for a few weeks and hits a plateau. To continue getting better results, looks like patients have to transition to injectables. If this is true, STVN is sitting on a huge opportunity ahead.
I am humbled to realize i dont know what the market knows regarding the recent slide.
Also, the float is super low (18%) with 82% held by the founding family.
If sentiment is weak, it could push the stock easily down. But if the sentiment gets better, it could go up easily.
Hi Kumar, thanks for the great feedback. We think the simplest explanation on the recent decrease is that this stock was absolutely loved by Wall Street since the IPO. The story was almost perfect: great industry, taking shares, amazingly operated, clean financials, and an easy theme with an aging population and growth in demand for biologics, etc. From our experience, several large small-cap-only funds had this stock as a "forever holding", purchasing when it is low and trimming when it gets higher. And I think this was reflected in the valuation. When it traded at 40x the cash it generates per year, you need it to be one of the best businesses in the world, and we clearly would not have bought at that level.
But then you had one big thing: STVN was not disclosing the exact % of sales from GLP-1 (the specific concern, as other oral biologics are not in concern for now). Everyone knew they benefited; equity research tried to estimate the percentage and it started to become a worry (they finally disclosed last earnings call it to be 20%). I think the concern was simple: STVN did well with injectable syringes and just built enormous facilities because of this demand, and now there is news that oral is getting more and more effective. So now the market is thinking that a big reason for the growth may become negative because people will buy oral instead of injectable GLP-1, therefore selling STVN and rotating into other "less risky" life science companies.
For sure, with the higher float it is a higher than typical risk/reward. So a very clean story turning into an okay-ish clean story makes it deserve a much lower stock price. Yes, other news on increased efficacy and less need for injectables can weigh on the stock. We still like it and believe financials will continue to do extremely well because injectables still have their place as we outlined in the report. Our view is that the market will eventually come back with the continued financial growth.
Another great idea and good write up.
Business looks solid, owner-operated, produces a critical product in the pharma value chain (not getting distrupted anytime soon). Company adds capacity based on customer demand, vertically integrated.
Want to discuss the risks:
Only major risk i see is shift towards orals for biologics. Why is the market so much worried about that?
Reading about this transition, the oral is in fact beneficial to the company's growth.
Patients start with orals if they had needle phobia but orals have limitations, it works for a few weeks and hits a plateau. To continue getting better results, looks like patients have to transition to injectables. If this is true, STVN is sitting on a huge opportunity ahead.
I am humbled to realize i dont know what the market knows regarding the recent slide.
Also, the float is super low (18%) with 82% held by the founding family.
If sentiment is weak, it could push the stock easily down. But if the sentiment gets better, it could go up easily.
Hi Kumar, thanks for the great feedback. We think the simplest explanation on the recent decrease is that this stock was absolutely loved by Wall Street since the IPO. The story was almost perfect: great industry, taking shares, amazingly operated, clean financials, and an easy theme with an aging population and growth in demand for biologics, etc. From our experience, several large small-cap-only funds had this stock as a "forever holding", purchasing when it is low and trimming when it gets higher. And I think this was reflected in the valuation. When it traded at 40x the cash it generates per year, you need it to be one of the best businesses in the world, and we clearly would not have bought at that level.
But then you had one big thing: STVN was not disclosing the exact % of sales from GLP-1 (the specific concern, as other oral biologics are not in concern for now). Everyone knew they benefited; equity research tried to estimate the percentage and it started to become a worry (they finally disclosed last earnings call it to be 20%). I think the concern was simple: STVN did well with injectable syringes and just built enormous facilities because of this demand, and now there is news that oral is getting more and more effective. So now the market is thinking that a big reason for the growth may become negative because people will buy oral instead of injectable GLP-1, therefore selling STVN and rotating into other "less risky" life science companies.
For sure, with the higher float it is a higher than typical risk/reward. So a very clean story turning into an okay-ish clean story makes it deserve a much lower stock price. Yes, other news on increased efficacy and less need for injectables can weigh on the stock. We still like it and believe financials will continue to do extremely well because injectables still have their place as we outlined in the report. Our view is that the market will eventually come back with the continued financial growth.
Bought STVN 3 months past. Waiting patiently whilst monitoring the thesis and rerate environment. Earnings upcoming will add some color .
STVN is starting to turn up! We cover our updated view shortly after the recent earnings here if you are ever interested in a paid subscription. We will update our price-target soon as well. Valuation can get out of hand quickly on this one: https://aurelionresearch.substack.com/p/flash-note-weekly-earnings-review?r=1uqxdl
Thanks for the invite, I'll check you out. Are you still holding CLBT?
Yes, currently holding it. We are looking forward to their earnings this week, and we still like the stock heading into earnings.
Earnings should be great 👀