Botanix Pharmaceuticals (ASX: BOT) is an Australian medicinal cannabis company. Botanix focuses on delivering treatments to fight serious skin diseases. These include acne, psoriasis, and atopic dermatitis.
Botanix looks to disrupt the skincare market by harnessing the potential of cannabidiol. Existing skincare treatments produce unpleasant side effects. Thus, providing Botanix, if their novel drugs are effective, with significant upside market potential.
Why did BOT rise by 276% over 2019?
The release of Botanix’s clinical data in June caused the share price to surge.
Price sensitive event one: – Phase 1b Clinical trial of BTX 1308 results – 19th June
Botanix’s Phase 1b study demonstrated how BOT’s formulation of Permetrex along with CBD acted as an anti-inflammatory agent in psoriasis (Scaly rash skin disease) patients.
In turn, the analysis validated Botanix’s clinical platform as an anti-inflammatory and immune-modulating agent.
Price sensitive event two: Worldwide study on BTX 1801 -20th June
Botanix’s worldwide study illustrated that:
- BTX 1801 effectively killed Gram-positive Bacteria
- BTX 1801 is effective at low concentration against clinical isolates Staph and MRSA
- Bacteria do not form a resistance against cannabidiol
- Cannabidiol kills bacteria in less than 3 hours
In turn, Botanix validated, through two clinical studies, that their drugs are anti-inflammatory and anti-infective. Consequently, Botanix de-risked its portfolio resulting in investor excitement to skyrocket, and thus, the share price increased.
Botanix Pharmaceuticals experienced revenue growth of 163.6% from June 2018 to June 2019. Revenue growth indicates a step towards profitability for Botanix. Moreover, BOT is debt-free. Meaning Botanix grew their revenue without acquiring debt.
Furthermore, Simply Wall St forecasted growth in Botanix’s ROE from -2769.6% (current) to 58.8% (3 years). Botanix’s forecasted ROE is impressive, considering the industry average of 7.2%.
Lastly, Botanix, according to Simply Wall St, is undervalued by 96.3%. This means that despite the current share price of $0.081, Botanix’s fair value is $2.27. Thus, providing a significant investment opportunity for investors now? This is ofcourse if the valuation is accurate.
Despite the pleasing financials above, we must discuss the negatives (risks). Why? Because YIG believes in providing investors with a balanced perspective on stocks. Especially cannabis stocks that allure investors through their forecasted growth.
Botanix is unprofitable. To add insult to injury earnings decreased by 54% over the past year (June 2018 – 2019)
Despite the revenue growth of 163.3%, Botanix’s current level of revenue, $4.69 million, is not meaningful. Thus, investors must not base their investment solely on BOT’s revenue growth.
Moreover, BOT’s cash flow is -13.14 million (June 2019). Which is significantly worse than $-9.91 million (June 2018)?
Lastly, despite Simply Wall streets, future forecast Botanix is operating with a ROE of -2769.6%. Meaning shareholders are losing not gaining value. In turn, the smart investor should generally avoid companies with a negative ROE. Also, with the industry average at 7.7% BOT is at a competitive disadvantage in terms of ROE.
Is BOT a buy for 2020?
Despite the excitement around Botanix’s upcoming clinical trials in 2020 BOT , at YIG we believe BOT may not be worth the investment for now (however this is our opinion and your own research may indicate a different view). Why we dont see growth? Because pumping and dumping requires a lot of money. Also, there are other stocks to invest in 2020 that possess less risk, such as Telstra, Qantas, and Macquarie Group.
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The information above is to be used as general investment guidance. Youth Investment Group has no liability for personal financial interests or investment decisions.
Written by Associate of YIG, Patrick McLoughlin