The investing game is rarely plain sailing. While no doubt investors would like the choices that make up their portfolio to always go up, the reality is more complicated. There are periods when even shares of the world’s most successful companies have been on a downward trajectory for one reason or another.
While it’s no fun watching a stock you own drift to the bottom, any savvy investor knows that if the company’s fundamentals are sound to begin with, the pullback is often a gift in disguise. This is where the chance for strong returns really comes into play. “Buy the Dip” is not a cliché without reason.
With this in mind, we scoured the TipRanks database and picked out two names which have been heading south recently, specifically ones pinpointed by those in the know as representing a buying opportunity. A look into their details will shed some light on why their share price has dropped, while the analyst commentary will add some color.
We’ll start with a company that has a fascinating connection to the cannabis industry. GrowGeneration is the owner-operator of a line of retail hydroponic and organic specialty gardening outlet stores, offering products from soil and plant nutrients to advanced lighting equipment and aquaponic tech. GrowGeneration’s product lines are used in both indoor and outdoor growing facilities. In short, this company is tailor-made to be a supplier to the cannabis companies. With 60 stores and distribution centers, GrowGeneration is the country’s largest hydroponic supplier.
The cannabis industry is growing rapidly – pun intended – and GrowGeneration is making gains along side this major customer base. The company’s 2Q21 results – the most recent reported – showed record levels of revenue and earnings. The top line came in at $125.9 million, up 190% year-over-year, while the EPS of 11 cents was nearly double the 6 cents reported in the year-ago quarter.
In addition to these solid financial numbers, GrowGeneration has been expanding its footprint. Just since late August, GrowGeneration has acquired Washington State’s Hoagtech Hydroponics, giving the company an entry to the $15 million annual hydroponic market in that state. GrowGeneration also acquired the Santa Clarita-based Commercial Grow Supply, a hydroponic superstore with $10 million in annual revenue in Los Angeles County. And in mid-September, GrowGeneration opened to new stores in LA County, further expanding its operations in Southern California.
Despite strong growth, both physically and financially, GRWG shares are down 64% from their February peak. Headwinds include supply chain difficulties, affecting both store construction and inventory, and regulatory challenges in the fragmented US cannabis industry.
Nevertheless, Oppenheimer’s 5-star analyst Brian Nagel, in a note titled ‘Pullback in GRWG a Buying Opportunity,’ writes of the company: “While current market concerns are not necessarily baseless, we nonetheless view them as largely overblown, particularly for well-positioned and rapidly developing players such as GRWG. We recommend intermediate to longer-term-oriented investors focus upon prospects for significant sales growth and profit expansion unlock at the chain, in coming quarters and years, as internal initiatives further take hold and shorter-term sector dislocations likely abate, and utilize weakness in shares as a buying opportunity.”
To this end, Nagel rates GRWG an Outperform (i.e. Buy), and sets a $60 price target that implies room for 156% upside in the year ahead. (To watch Nagel’s track record, click here)
Turning now to the rest of the Street, other analysts are on the same page. With 5 Buys and no Holds or Sells, the word on the Street is that GRWG is a Strong Buy. Given its $56.60 average price target, upside of ~142% could be in store for investors. (See GRWG stock analysis on TipRanks)
From hydroponics we’ll shift gears into the biotech industry. PTC Therapeutics is a biopharmaceutical company with a focus on gene therapies. The company is developing a range of orally dosed, small molecule drugs to target post-transcriptional control mechanisms in the gene regulation of orphan diseases. It sounds like a mouthful, but it means simply that the company is looking to find new treatments for heritable severe diseases, and is working to target affected genes directly.
PTC has a portfolio of 5 approved medications on the market, and so unlike many biopharma researchers it has a reliable income stream. In the last quarter, 2Q21, PTC reported $116.7 million in total revenues, up 55% from the year-ago quarter. The company’s net loss moderated year-over-year, from $181.4 million to $118.4 million. The gains in revenue, and the moderation of the net loss, were driven by solid revenue growth in the existing portfolio of approved products.
Turning to the development pipeline, two of the company's more advanced programs have recently reported updates on clinical trials. The PTC-AADC program was the subject of an analysis, based on 5 years of data, in the treatment of aromatic L-Amino acid decarboxylase (AADC) deficiency. This condition previously had no available treatment and was invariably fatal in affected children. PTC’s data show that the company’s gene therapy leads to improvements in motor function and cognitive skills.
The company’s PTC518 program, a new drug under investigation for the treatment of Huntington’s disease, showed positive results from the Phase 1 healthy volunteer study. The results include HTT mRNA and protein reductions, showing that the drug candidate is able to pass through the blood-brain barrier and achieve therapeutic effects. PTC is on track to initiation a Phase 2 trial in this program by the end of this year.
PTC stock has found 2021 hard going and is down 41% year-to-date. However, the “recent weakness,” says Canor analyst Alethia Young has created a “buying opportunity.” In her view, the PTC518 program is the key driver here.
“We view the protein lowering data as consistent with what was seen at the mRNA level. We believe PTCT has a shot with a Ph2 for a potential accelerated approval, but either way this Ph2 will be a major catalyst for the company and support proof-of-concept. We currently believe the stock reflects very little credit or expectation for PTC518. Since the Ph1 showed a clear dose-dependent relationship for HTT mRNA and protein, we believe that PTC518 is easily titratable, which gives the company flexibility in managing both efficacy and safety,” Young noted.
Young puts a $75 price target on PTCT stock, reflecting her belief in a 107% upside heading into next year. Her price target and comments back up her Overweight (i.e. Buy) rating on the shares. (To watch Young’s track record, click here)
All in all, this stock has received 8 recent reviews from the Wall Street analyst corps, and they break down 5 to 3 Buy over Hold for a Moderate Buy consensus view. The stock is selling for $36.20 and its $58.33 average price target implies it has room for 61% appreciation over the coming 12 months. (See PTCT stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
