Nuvectra – a combination of spinoff and net-net stock

Nuvectra Corporation (NVTR) was recently separated from Greatbatch (GB). Nuvectra is a neuromodulation medical device company, develops and commercializes its neurostimulation technology platform for the treatment of various disorders in neuroscience and clinical markets in Europe. The company had revenues of $3.7 million in 2015 from selling its Algovita spinal cord stimulation system that is used for the treatment of chronic pain of the trunk and limbs. Besides that, it has few more interesting technologies in various development stages.

When a solid $1 billion company separates a tiny-losing $45 million medical company, the spinoff must immediately crash as institutional investor hurry to sell the tiny stock. That’s exactly what happened to NVTR, who went down all the way from $10.5 to currently $4.8. Interestingly, at this level NVTR’s market cap is around $48 million, almost half its cash and equivalents of roughly $75 million and zero debt. In other words, we have a spinoff which is also a Net-Net stock (current assets minus all liabilities is much greater then market cap).

Nuvectra is still losing money and will continue to loss more in the next few years as R&D is expected to increase. This means a high cash burn rate. On the other hand, it can borrow up to $45 million in the next 2 years under several conditions to support its R&D and marketing efforts. In addition, it has a strong and very experienced management with highly compensation program depending on the stock price, so they will probably work hard to succeed (or to sell the company to one the giant competitors at much higher values).

To summarize, It’s a classic high risk – high reward situation. If growth will be substantial the stock could skyrocket, and on the other side if it fails it can go down. However, the answer will be given only few years from now, and in the meantime I think the stock should trade at much higher prices similar to its peers.

So should you buy?  At $4.5 when the stock is traded below its net cash value I would risk a few percents of my portfolio in order to be rewarded if things will go right, so I’ll add it to the recommended spinoffs list and will watch closely on the occurrences in the near future. If you’re not a fun of roller coasters, please don’t buy this (speculative) stock.

Be the first to comment on "Nuvectra – a combination of spinoff and net-net stock"

Leave a comment