Cara Therapeutics, Inc.

CARA Details

Cara Therapeutics, Inc. (NASDAQ: CARA) is a biotechnology company that focuses on discovering and commercialization of therapeutic medicines to treat inflammatory, pain, and pruritus-related conditions. CARA is creating a pipeline of compounds with analgesic and anti-inflammatory effects using its unique drug screening technique. It is also working on a new product called KORSUVA (CR845/difelikefalin) to treat chronic kidney disease-associated pruritus (CKD-aP) in hemodialysis patients. License and Milestone payments, Collaborative income, and Clinical Compound revenue are its three primary sources of revenue.

Third Milestone Payment for the Development of Oral KORSUVA: SWK Holdings Corporation (SWKH), a life sciences specialty finance business, stated on June 11, 2021, that CARA had paid a USD 10 million milestone payment to Enteris BioPharma, its wholly-owned subsidiary, for the Peptelligence oral formulation technology used in Oral KORSUVA. CARA made the first two milestone payments (totaling USD 5 million) during Q4FY20. CARA also mentioned that it intends to start the Phase 3 program in FY21.

Unfavorable Phase 2 Results for Secondary Indication: On April 29, 2021, the company announced somewhat unfavorable results from its Phase 2 study for Oral KORSUVA in treating moderate-to-severe pruritis in patients with atopic dermatitis.

Product Pipeline (Source: Investor Factsheet, April 2021)

Q1FY21 Results: The company reported a significant decline of 76.09% in total revenue to USD 1.94 million in Q1FY21 (ending March 31, 2021) compared to USD 8.09 million in Q1FY20, due to an 85.13% decline in License and Milestone fees revenues. Net loss for Q1FY21 declined to USD 23.30 million vs. USD 28.92 million in Q1FY20. As of March 31, 2021, the company stood with cash and cash equivalents (including marketable securities) of USD 171.58 million, with no outstanding debt.

Key Risks: There are currently no authorized products for commercial distribution by the company. KORSUVA injection for the treatment of CKD-aP has taken up a considerable amount of the company's financial resources. If the FDA rejects its commercialization, the company's operational and financial health might be compromised.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

CARA Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: CARA's share price has declined by 52.93% in the past three months and is currently leaning towards the lower band of the 52-week range of USD 11.80 to USD 29.65. The strong correction came primarily after the company announced the aforementioned Phase 2 study results for Oral KORSUVA in treating moderate-to-severe pruritis in patients with atopic dermatitis. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 32.12. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 15.09. Considering the significant correction in the stock price, strong balance sheet, commercialization efforts, current valuation, and associated risks, we recommend a “Speculative Buy” rating on the stock at the current price of USD 12.77, down 1.46% as of July 22, 2021, 2:24 PM ET.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Orion Energy Systems, Inc.

OESX Details

Orion Energy Systems, Inc. (NASDAQ: OESX) provides lighting systems, wireless control systems, project engineering, energy project design, and maintenance services. OESX’s products are marketed to various clients, including public end-users, federal and state governments, electrical providers, and energy service companies (ESCOs). OESX aimed to cover three primary market segments: commercial and retail workplace, area lighting, and industrial applications. The company generates revenue by selling commercial lighting fixtures and components and installing these fixtures in the customer's facilities.

Strategic Investment to Enhance Customer Value: On May 5, 2021, OESX announced a USD 0.5 million investment in ndustrial.io, a supplier of software and services to improve industrial facilities across discrete and process manufacturing supply chains. OESX purchased a stake in ndustrial.io through its participation in the USD 6 million Series A investment round.

FY21 Results: The company reported a 22.54% decline in total revenues to USD 116.84 million in FY21 (ended March 31, 2021) compared to USD 150.84 million in FY20 owing to the postponement of various projects during H1FY21 as a result of the COVID-19 pandemic. However, it witnessed a 2.09x YoY increase in net income to USD 26.13 million in FY21 vs. USD 12.46 million in FY20 due to the realization of USD 19.62 million deferred income tax benefit. As of March 31, 2021, the company stood with cash and cash equivalents of USD 19.39 million, with total debt of USD 0.05 million.

Quarterly Financial Metrics (Source: Investor Presentation, June 02, 2021)

Key Risks: In FY21, FY20, and FY19, OESX's largest client accounted for 56.0%, 74.1%, and 20.7% of total revenues, respectively. This business concentration with a single customer may harm the company's financial situation in the long run. Furthermore, the company requires raw materials including aluminum, copper, semiconductor chips, power supplies, and LED chips and modules, all of which are susceptible to price increases and supply restrictions. As a result, any significant delays or price fluctuations in these raw materials can negatively impact the company's operational and financial results.

Outlook: As of FY21, OESX estimates its FY22 revenue to be in the range of USD 150 to USD 155 million, representing a 28% increase over FY21. It recently released products such as LED outdoor and linear lighting fixtures and the ‘ISON PureMotion’ air movement line and increased interaction with academic institutions, all of which are expected to help increase revenues in FY22 and beyond.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY22E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

OESX Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: OESX’s share price has fallen 55.93% in the past six months and is currently trading at the lower band of the 52-week range of USD 3.87 to USD 11.98. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 40.49. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 6.21. Considering the correction in the stock price in the past six months, strategic investments for expansion, strong balance sheet, improved fundamentals, and associated risks, we recommend a “Speculative Buy” rating on the stock at the current price of USD 5.05, down 3.62% as of July 22, 2021, 3:38 PM ET.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.