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 Reports and Commentary from the Investment World

Reports and commentaries are posted here on a regular basis.


Dusa Inc


DUSA Pharmaceuticals Inc (Dusa:NYSE) 

Micro biotechs have so far gone under the radar of most main stream brokers. We have invested in this stock a number of times over the past 5 years and always made a decent profit. It looks like its about to move up again soon. It represents good value in the microcap biotech sector at the moment. DUSA combines a proprietary light-activated topical drug (the Levulan Kerastick) with a proprietary light system (BLU-U) that allows dermatologists to treat patients for an increasingly common pre-cancerous skin
lesion called an actinic keratosis.

The company has been growing revenues over 20% a year and gross margins on its core product have just hit 88%. The sole analyst (from Roth Capital) covering the company projects it will do $36.6 million in revenue this year and earn .04/share, and because of those very high gross margins and great top-line growth, the company is projected to earn 0.20/share in 2011. Additionally, it has almost $18 million in cash and No debt! The stock is currently trading at less than 1x projected 2010 revenue. Typically, a company growing the top line at around 20% a year and with gross margins approaching 90% will sell at closer to 4x projected revenue.

If the company comes in on target with its projected earnings of 0.20/share  in 2011 that will represent a 400% increase over the 2010 estimate. With that kind of growth and high gross margins, we believe that the stock's fair value should be around $4 per share. So the stock could easily double from where it is now.

Many of the large pharmaceutical companies have cash war chests at the moment and are on the look out for good acquisitions. DUSA could catch their eye. If a larger pharma company buys the company, it could easily pay 4x to 5x revenue, which could mean an acquisition price of $6 to $7per share.
As with any micro biotech you can expect the shares to be volatile, but this company may be worth the risk with a small portion of your portfolio.

 Buy DUSA up to $2.75


Disclaimer: All the information above is provided as a service for individuals and institutions. It should in no way be construed as a recommendation as an investment. Investment decisions should be based on the risk tolerance and planning horizon of the investor. Market participants must understand that past performance is also not a guarantee or predictor of future results.