In the May Special Situations Real Money Portfolio update, I mentioned that I purchased 5,000 shares of XTENT (XTNT). Let me recount how this investment came about and how it turned out.
XTENT is a development stage medical device company focused on developing and commercializing customizable drug eluting stent systems for the treatment of coronary artery diseases. Based on the March 31, 2009 balance sheet, XTENT’s net current asset value is $0.46 per share and its book value is $0.53 per share. Net cash per share is about $0.40 per share. Insiders own over 60% of shares.
Management indicated on March 15, 2009 in a preliminary proxy that they estimate the amount ultimately distributed during the proposed business liquidation will be between approximately $0.11 and $0.40 per share, assuming the company is unable to sell its intellectual property. At the time, I thought there was a decent probability that the company would be able to sell some of its intellectual property, and thus boost the ultimate payout. I also thought there was the potential that someone would want to buy this company as a corporate shell.
I picked up the 5,000 shares of XTENT (XTNT) on May 27th at just under $0.30 per share for the Special Situations Real Money Portfolio. I shared news of my purchase with members of my premium Fat Pitch Financials Contributors Corner service. My total cost for these shares came to $1,503.86. I decided to buy these shares because XTENT was trading at less than 2/3 NCAV and the company also recently announced that it would be liquidating.
The 5,000 shares of XTENT (XTNT) were short lived in the Special Situations Real Money Portfolio. I made the mistake of keeping a limit order open to sell the shares at $0.38. I placed that limit order on June 3rd, since it appeared the shares might hit that price on no news the day before. I was also getting nervous about off balance sheet liabilities that I hadn’t originally accounted for and was more than happy to sell my shares if the stock approached $0.40 without news. Well, I guess there was news that was forthcoming.
News happened and I wasn’t quick enough to react. On June 4th, my shares were sold at the open for $0.60 per share. News broke that morning that the company received conditional approval from the FDA for an Investigational Device Exemption authorizing it to begin its pivotal clinical program for its Custom NX® drug eluting stent system. The market liked this news and sent shares of XTENT soaring.
When I sold the shares on June 4, 2009, I received $2,992.97 net of costs. My total profit came in at $1,489.11 for this investment. That comes out to a total return of 99.0%. The average annualized return was 4,016% for this 9 day investment.
I should have been thrilled by this performance. However, I suffered some sellers remorse. Shares of XTENT continued to climb until they hit a high of $2.69 on June 5, 2009. The momentum traders really hit this stock hard. However, since there has been no new news, shares have traded down significantly and closed today at $1.31, which around what I safely estimate the shares to be worth if the company is liquidated and the intellectual property is sold off. I think the lesson I learned here is not to underestimate the potential for momentum investors to drive up the price of a penny stock net-net.
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