Checking in on the chilling cohort of negative enterprise value stocks by Alon Bochman, CFA
In July of this year, I wrote about the attractive historical performance of negative enterprise value (EV) stocks. The following month, I wrote about the list of stocks that fit the bill at particular moment. My goal was to show how scary these stocks are, and how difficult it is to execute a consistent negative EV investment strategy. My article concluded:
Each negative EV stock has something very wrong with it….However, despite the fear they inspire, and perhaps because of it, we know that – as a group and over time they tend to generate highly attractive returns.
Although my original study covered annual returns, I thought it would be interesting to check in on that chilling cohort from my previous article. Here they are, four months later:
Editor’s note: data is available here.
A few notes about the chart: The closing price, as indicated, is adjusted by Yahoo! Finance for splits and dividends. Here is a detailed explanation of their methodology. Two of the stocks did not have a closing price on 12/11/2013: iGo, Inc. (OTCMKTS:IGOI) and Maxygen, Inc. (NASDAQ:MAXY). What happened to them?
- iGo, Inc. (OTCMKTS:IGOI) delisted from the NASDAQ on 11/22/13. In an SEC filing, the company claimed it would begin trading over the counter, but I could find no evidence of that in either exchange. On the one hand, the company’s website still appears to be up and running. On the other hand, the stock is not trading and some stock discussion boards featured message from irate shareholders accusing management of various misdeeds. To be conservative, I’ve assumed this stock is a total loss, with an ending price of zero.
- Maxygen, Inc. (NASDAQ:MAXY) delisted on 8/29/2013 as one of the last steps in its liquidation process. The company paid a liquidation distribution of $2.50 per share that day, and indicated it may pay up to $0.09 more. The last trading price was $2.53. The closing price I used for my calculation was $2.50, assuming no further distributions.
GenVec Inc (NASDAQ:GNVC), the star of this show, is a small biotech firm that was planning to liquidate when I looked at it in August. After holding some liquidation auctions, Genvec got a second wind: Some time ago, the company apparently licensed a hearing loss “program” to Novartis. Genvec did not think the program would become commercially viable, and therefore neglected to mention it to investors. Surprisingly, on 10/11/13, a German newspaper wrote optimistically about the program, quoting some Novartis scientists. Later, Genvec disclosed that the NIH approved a Phase 1 study using the program.
In summary, despite one total loss, the negative EV cohort gained more than 32% over the last five months while the S&P gained just shy of 9%.
Before getting too excited about these results, I believe some caveats are in order: Past performance is not necessarily indicative of future returns. Also, one should not generalize from a limited list of 15 stocks and from one point in time – we’ve certainly had some very special market circumstances over the past few quarters.
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This was previously published on Inside Investing at the CFA Institute.
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Alon Bochman, CFA, is managing partner of Stepwise Capital, a New York based investment partnership that combines value investing principles with statistical methods to create a portfolio of differentiated strategies that seek to systematically exploit structural market inefficiencies. Previously, he spent two years managing an equity portfolio for SC Fundamental. Bochman began his career as a programmer by co-founding a social networking software firm eventually sold to Thomson-Reuters. He holds an MBA from Columbia Business School and a BA from the University at Albany.
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