Investing is a risky game- and no more so than with the stocks listed below. Both Transenterix Inc (NYSE:TRXC) and Helios and Matheson Analytics Inc (NASDAQ:HMNY) have recently posted exceptional gains. Healthcare stock TRXC exploded exponentially following a critical regulatory approval, while HMNY posted massive gains in the wake of a smart acquisition deal of a small cinema company with big potential. However, both of these stocks are now falling back- but is it for good reason? Here we see why it is wise to be cautious before leaping on the bandwagon just yet. At the same time, for the lucky investors who enjoyed the ride- is now the time to take your profits and get out? Let’s take a closer look now.
Medical device company Transenterix specializes in what may once have seemed like a futuristic nightmare- surgical robots. Specifically, it is working on the Senhance System which gives surgeons a 3-D high-definition view and remote control of three robotic arms for laparoscopic procedures. But it is the stock’s rapid price swings that really have the market buzzing.
The stock experienced a massive boost recently following an approval from the US Food and Drug Administration (FDA). The approval for its robotic device came far earlier than expected and investors celebrated as the shares more than doubled on October 16. Shares continued to rise on October 17 all the way to $4. Pre-approval the stock had been trading at under $1.50. There is no doubt that the approval marks a significant milestone for the company- as it is one of very few robotic devices to receive the required regulatory approval in the US. Furthermore, there is a large commercial opportunity ahead as over 4 million open abdominal procedures occur each year in the US and the EU. This opportunity will be even greater if TRXC moves to expand the Senhance into general surgery rather than laparoscopic surgery specifically.
However, the picture is no longer so black-and-white. Shares are now dropping back from $4 all the way to $2.37. This time the catalyst is a telling insider transaction from company CEO Todd Pope. He sold 600,000 TRXC shares worth $2 million just five days after the FDA approval. As a result, Pope’s current holding of the stock is worth under $100,000. Short seller TheStreetSweeper made this pertinent observation about the CEO’s decision to sell: “So the man who best understands the pluses and minuses of the TransEnterix robot is unloading stock at a time when the product has just attained the marketing approval that’s supposed to turn the company around?… If the CEO’s selling now, we’re selling.”
The report doesn’t stop there though. First of all, it notes that in Europe, where the Senhance has already been approved, only 3 of the devices have been sold since 2011. Meanwhile, the company will face tough competition from rival Intuitive Surgical Inc, the company behind the Da Vinci robotic system. So far Intuitive, which has just reported “a great quarter” according to Morgan Stanley, doesn’t seem too worried about the latest approval for TRXC. Indeed, its aggressive spending should help it remain well ahead of the pack.
TheStreetSweeper sums up, “There’s no way TransEnterix will build a business worthy of today’s nearly $500 million stock market valuation. We believe the company, which has accumulated over $333 million in losses, would be overpriced at a price-to-sales less than a fifth of the current 94 ratio.” And for those investors still hanging on- note the bold conclusion that doesn’t mince its words: “The stock is dangerously ahead of itself and we expect a sudden, near-term 60% drop off the cliff.”
Nonetheless the Street has stayed bullish so far. From TipRanks we can see that this stock has a ‘Strong Buy’ analyst consensus rating. In the last three months this breaks down into 3 buy ratings and only 1 hold rating. Meanwhile the average analyst price target of $4.42 now translates into big upside potential from the current share price of 86%. For example, one of these price targets comes from five-star RBC Capital analyst Glenn Novarro. He has a buy rating on TRXC with a $5 price target (110% upside)- the stock’s highest price target yet.
Helios and Matheson Analytics Inc
If you haven’t heard of Helios & Matheson, this big data IT company has been on a serious rollercoaster ride as of late. This is a company that has one of the Netflix founders, Mitch Lowe, as its CEO. Helios says its goal is to help global enterprises make informed decisions by providing insights into social phenomena.
The stock was fairly under-the-radar until a couple of months ago. On August 15, Helios announced that it was buying the controlling stake of 52% in MoviePass. The deal made the market sit up and listen. Share prices exploded from under $3 to over $30 in just a couple of months. At its peak on October 11, the stock had climbed a whopping 900%.
Why? Well MoviePass is an online ticketing service to see unlimited movies. This company can disrupt the traditional cinema model. The potential became clear only recently when MoviePass slashed its price from $30 to just $9.95 per month. Following the price cut, its subscriber base increased exponentially by more than 400,000 from just 20,000 previously. Now management estimates that by the third quarter of 2018, this fast-growing and easily scalable business could boast well over 2 million subscribers. Plus an interesting opportunity for MoviePass- and Helios- also arises from the valuable data it will collect on subscribers. This data can be sold to theaters, studios and advertisers.
However, if we turn back to Helios we can see that the stock has been losing some of its recently-found gains due to an uptick in short selling. Since October 11, prices have dropped back to just under $11. This is still a long way from previous prices of below $3, but it also marks a sharp drop from the highs of over $30. The question is now whether the risk/reward is balanced in the investor’s favor or not. Could Helios drop even further? At this point it is best to be cautious. The stock certainly has a lot going for it, and picking up a stake in MoviePass was a smart move. But, in the face of such extreme volatility, I would recommend waiting a while and seeing how this promise materializes before putting your money on the table.
Only one analyst has published a rating on HMNY in the last three months. At the beginning of October, Maxim Group’s Brian Kinstlinger initiated coverage on Helios with a buy rating and $20 price target. His target now stands at a significant upside of 86% from the current share price. He says “HMNY’s announced purchase of 52% of MoviePass, Inc. (private) in August will lead to outsized revenue growth and drive shareholder value, in our opinion.”