Dendreon's Bullish Case: Treat It Like An Option
Posted by Gareth Soloway Tuesday, August 12, 2014, 11:34AM ET
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Dendreon Corporation (NASDAQ:DNDN) is down 36% to $1.35 after the company said it may have to wipe out shareholder equity in the company to pay off debt. This sounds like a catastrophe but let's explore the nuances to better understand what is going on here. First, the company absolutely could file for bankruptcy. That is a worst case scenario for any investor buying at these levels. Now that we know the worst case, let's analyze the other side.
First, this debt that needs to be repaid and could cause bankruptcy is not due until January 2016. That means that they have almost 1.5 years to figure out a solution. Next, the company reported better than expected revenue and a smaller than expected loss in their latest quarter for their main drug Provenge. The bottom line is, this company is moving in the right direction on all metrics aside from the debt due in January 2016.
If this becomes an investment choice for you, my suggestion would be to treat it like an option. Options expire worthless if they hit the expiration and are out of the money. We know the expiration is January 2016. This 'option contract' has 16 months until the expiration and will only cost $1.35 as of today. Like an option, only put a little money into it. If the company can work out a deal, this stock could be valued north of $3.00 by January 2016, especially if Provenge sales continue to pick up. This is a very attractive play as well as another drug company could be interested in picking up Dendreon Corporation as a cheap investment in a drug that works and has a ton of potential. A buy out price could also be north of $3.00 per share.
Overall, Dendreon Corporation looks attractive at this level as long as investors understand the risk. Take the seven day, no obligation free trial to the Research Center and get swing trade alerts with entry and exit prices live as we trade. Just take a look at the calls we have given members here... then us and profit for life.
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