Small-Cap Sunday Highlights: Andean Precious Metals, Aadi Bioscience, Aprea Therapeutics, Arc Document Solutions, Curaleaf
The TDR Three Key Takeaways regarding Small-Cap Stocks and Small-Cap Companies:
- Andean Precious Metals’ unique value proposition lies in its dual revenue streams from mining and processing services, which are similar to those of an oil refinery in the oil industry.
- Curaleaf reported a revenue growth of 29% over the last three years, aligning with industry peers, though growth slowed to 3.1% this year.
- When analyzing biotech companies, we focus on the drug development stage, financial health, total addressable market, and revenue growth potential.
This week, we analyze five notable small-cap companies: Andean Precious Metals, Aadi Bioscience, Aprea Therapeutics, ARC Document Solutions, and Curaleaf. Each company operates in distinct sectors, providing a comprehensive view of the diverse opportunities within the small-cap stocks category.
Andean Precious Metals (TSXV: APM), a mature-stage mining company. Its share price stands at $0.99, with a market cap of $149 million and 149 million shares outstanding. The daily trading volume is 18,000. Andean Precious Metals operates primarily in the Golden Queen Mine in California and increases a substantial processing facility in Bolivia. The company’s unique value proposition lies in its dual revenue streams from mining and processing services, akin to an oil refinery in the oil industry.
The company’s financial health is very strong, with working capital nearly matching its market cap, underscoring its liquidity and financial stability. The breakup value of its assets stands at $180 million. Notably, insiders hold a significant 53% of shares, including a 14% stake by renowned investor Eric Sprott. This high level of insider investment signals strong confidence in the company’s prospects. Moreover, Andean Precious Metals has shown a focus on shareholder value by repurchasing 3.8% of its outstanding shares last year. This strategy not only increases the shareholders’ stake but also serves as a tax-efficient way to return value to investors. Given these factors, Andean Precious Metals presents an intriguing investment opportunity, characterized by strong financial fundamentals and a prudent growth strategy.
When analyzing biotech companies, we follow a structured process, focusing on key factors such as drug development stage, financial health, total addressable market, and revenue and growth potential. This methodical approach helps identify biotech firms with the most promising risk-reward profiles, ensuring informed investment decisions.
Aadi Bioscience (NASDAQ: AADI), operating in the high-risk, high-reward biotech sector, focuses on developing cancer treatments. The company’s share price is $1.43, with a market cap of $35 million and 24.5 million shares outstanding. Aadi Bioscience’s standout feature is its approved drug targeting a specific type of cancer, with a total addressable market of 16,000 new cases annually. Additionally, the company has other drugs in various development stages, including one in phase two trials.
Despite a significant drop in stock price from a high of $29 in 2021 to the current $1.43, Aadi Bioscience’s financial fundamentals remain strong. The company reported $23 million in revenue over the past 12 months, with a 27% growth rate. However, the substantial R&D expenditure of $51 million has resulted in an EBITDA loss of $74 million, reflecting the typical financial challenges faced by biotech firms. With $82 million in working capital, Aadi Bioscience appears well-positioned to sustain its operations in the near term. However, the negative leverage free cash flow of $61 million highlights the need for strategic financial planning to secure long-term viability. Given its advanced drug pipeline and substantial market potential, Aadi Bioscience offers potential upside for investors willing to navigate the inherent risks of biotech investments.
Aprea Therapeutics (NASDAQ: APRE) is another biotech company, focusing on innovative cancer treatments. The company’s share price is $3.95, with a market cap of $21 million and 5.4 million shares outstanding. The daily trading volume is 44,000. Aprea’s history includes going public in October 2019 with significant investor enthusiasm, initially driving its stock price from an equivalent of $15 to nearly $1,000. This excitement was fueled by a promising cancer drug that received fast-track approval for phase three trials. However, the stock plummeted 70% in one day when disappointing trial data was released, highlighting the high-risk nature of biotech investments.
Currently, Aprea has a phase one trial in progress, another starting, and a preclinical project. The company recently raised $34 million, bolstering its working capital to $30 million. Despite an EBITDA loss of $14 million last year and a negative leverage free cash flow of $13 million, Aprea’s institutional backing and capital raise provide some runway. However, with only about two years’ worth of burn rate covered, the company’s early-stage status and financial outlook suggest cautious optimism for investors willing to bet on long-term development.
ARC Document Solutions (NYSE: ARC), a mature high-tech printing company, serves a diverse clientele, including prominent names such as Nike, Chevron, and Starbucks. The company’s share price is $2.92, with a market cap of $126 million and 43.1 million shares outstanding. The daily trading volume is 275,000. ARC specializes in producing large-scale printed displays for various industries, benefiting from a niche market with a gross margin of 33.3%. Despite its mature industry status, the company has managed to maintain strong financial health, evidenced by $285 million in revenue and $30 million in EBITDA.
The company has strategically utilized its cash flow for shareholder returns, including a 6.8% dividend yield and share repurchases amounting to 2.5% of the float last year. Additionally, ARC is investing in future growth through a capex budget of $11.5 million and R&D expenditures of $7.1 million, focusing on leveraging AI for operational efficiencies. Given its strong financial position, consistent shareholder returns, and ongoing investment in future growth, ARC Document Solutions presents a stable and intriguing investment opportunity within the small-cap sector.
Curaleaf (OTC: CURLF), a multi-state operator in the cannabis sector, operates in states such as Florida, Ohio, Pennsylvania, and New York, viewing the latter as a significant wholesale market opportunity despite current challenges. Curaleaf’s share price is $4.50, with a market cap of $3.1 billion and 698 million shares outstanding. The daily trading volume is strong, reflecting strong market interest.
Curaleaf reported a revenue growth of 29% over the last three years, aligning with industry peers, though growth slowed to 3.1% this year. The company’s gross margin has slipped to 45.5%, below the industry benchmark, but it leads in SG&A efficiency. With a current ratio impacted by $136 million in debt due for renewal, Curaleaf’s liquidity appears more strained than competitors’. Nonetheless, the healthy debt market mitigates concerns over rolling this debt. Curaleaf’s leverage is higher than peers, indicating a higher risk-reward profile. The company has turned cash flow positive, significantly reducing its operational risk. Despite a lower capex compared to the industry median, international expansion plans suggest future growth investments.
Based on our comprehensive analysis, we would buy Andean Precious Metals as the top investment choice. The company’s strong financial health, stable revenue streams, and high insider investment provide a lower-risk profile compared to the volatile nature of biotech investments. For investors seeking exposure to the biotech sector, Aadi Bioscience’s approved drug and promising pipeline offer significant potential, albeit with higher risks. ARC Document Solutions and Curaleaf also present intriguing opportunities within their respective sectors, with ARC offering stability and consistent returns, and Curaleaf providing exposure to the growing cannabis market.
While Andean Precious Metals stands out as a strong investment, Aadi Bioscience, Aprea Therapeutics, ARC Document Solutions, and Curaleaf also offer compelling opportunities within their respective sectors. Investors should conduct thorough due diligence and consider their risk tolerance before making investment decisions.
