Biotech stocks are risky endeavors but are often popular amongst investors who are looking for larger returns in the future. With the sector being so reliant on government approvals and stringent healthcare policies, biotech stocks often go years with very little activity, and then pop once an announcement is made. BioGaia AB (STO:BIOG-B.ST) is a Stockholm, Sweden based biotech firm that focuses on developing products with probiotics that are used to improve human gut health as well as overall bodily function. BioGaia was established in 1990, and sells its products in over 100 countries around the world. Learn more
BioGaia trades on the Nordic NASDAQ exchange so its prices and valuations are calculated in Swedish Krona. Shares currently trade at roughly 450 SEK which is equivalent to about $54 USD, and has a market cap of 9 billion SEK or approximately $1.1 billion USD. As you can see, BioGaia has a tremendous runway for growth ahead of it, and can easily grow by ten times from here if management executes well. Small cap biotech stocks are exciting with the high risk high reward tradeoff, so let’s see how BioGaia looks as a long-term investment.
The Bullish Case: It’s easy to get carried away with being bullish on speculative biotech stocks, but BioGaia actually presents an enterprise that has legitimate products available to consumers. The key probiotic patent that BioGaia uses in its product is called L. reuteri, which is a strain that improves gut health, bone health, gums and teeth, GI tract, and potentially even the colon which is still being researched. Biogaia has nearly 80% of its products targeted at the pediatric population, as the popularity and effects of probiotic usage in babies continues to rise. BioGaia has been involved in over 224 global studies and counting, in regards to the effects and benefits of L. reuteri on both adults and children. BioGaia is also delving into research for the effects of L. reuteri on pregnant women, as well as its long-term impacts on our bones and teeth. On top of this, BioGaia is a financially well run operation, with a pristine balance sheet and impressive gross profit margins of 25%. With 55% of the shares owned by institutions, and nearly 10% still owned by insiders, that gives us great confidence that big money is optimistic about BioGaia moving forward.
The Bearish Case: The bearish case with specific use products like probiotics is of course that they can be replaced at some point by either a larger company, or a more effective strain. BioGaia has seemingly placed all of its eggs in the L.reuteri basket, and while this probiotic is one of the most well documented and well researched in the world, it just takes one piece of bad news or results to throw the company off the rails. Other than that, BioGaia is already in 100 countries around the world. While that is a very bullish fact, it does beg the question of how much can the company actually grow from this point. Can it grow by ten times after already being in so many markets? It may require a dramatic increase in adoption of the product or perhaps diversifying their products which may cut into the long-term margins.
Final Verdict on BioGaia: For a small-cap biotech company, BioGaia is further ahead than many of its peers. With an established product line that is available in over 100 markets around the world, and a healthy balance sheet, BioGaia is already a profitable enterprise, and even has enough cash flow to pay out a small dividend. BioGaia has all of the traits to exhibit exponential growth in the future, and is an extremely attractive investment opportunity moving forward.