A few reasons for the mispriced value appear to be related to the risks of the stem-cell industry. This particular niche within the biotechnology world is still in its infancy. There is a lot of promise, but investors are still waiting for that proof.
With regards to NeoStem, the company still faces several trials and studies. As with all biotechs, the risk of failure is high. Even after a successful trial, the company still faces the hurdle of attaining regulatory approval.
NeoStem will also likely need to raise additional funds in the future in order to continue funding trials. As of June 30, the company had about $14.7 million in available cash. Based on the company's current monthly burn rate of about $2.7 million, this cash balance should be enough to take the company into the late spring of 2014. Hopefully the share price will continue to appreciate, so the company won't have to issue as many shares.
Despite the risks facing NeoStem, there appears to be a mispricing by the market. Even with the recent run-up, a sum-of-the-parts valuation analysis indicates that the company should be trading much higher than it currently is. I believe that by the end of the year, the gap between the real value and the current value will narrow. Investors looking for a promising biotech stock in an exciting niche may want to keep NeoStem on their radar.At the time of publication, Meyer held no positions in stocks mentioned, although positions may change at any time. --Written by Tom Meyer in New York
Follow @StockArsenal This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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