GATA - Groupe Athena

[wknecht]

GATA is a profitable and cash flow positive net-net with a negative enterprise value. The stock is illiquid. The company is small and only around 5 years old. It helps firms in India obtain FDA approval for pharmaceuticals, medical products, and devices for export to America (e.g., with consultation through all the regulatory requirements, filings, and processes to achieve FDA compliance and approval). They're also currently transitioning to the manufacturing and marketing side of the pharmaceutical industry. Insiders own around 88% of the stock.

 

Quantitatively it is very cheap. Although what constitutes excess net cash (excess cash less all liabilities) is subjective, I estimate this figure is close to the current price of around $0.20. Other stats without adjustments for excess cash:

• P/E: 1.7x
  
• P/5YAvg(E): 3.5x
  
• P/FCFE: 1.5x
  
• P/5YAvg(FCFE): 6.5x
  

To me, GATA is qualitatively a little speculative. By which I mean:

• I have never personally invested in India (albeit, incorporated in the United States)
  
• The level of disclosure is less than desired
  
• I have some unanswered questions sent to management that I hope to hear the answer to (e.g., regarding risks to the business, what they plan to do with the cash, taxes)
  

Based on the quantitative characteristics, I've started a position. Given the qualitative cons, I have kept the position small for the time being. I would be curious if others are familiar with the company, particularly if they passed on the idea based on a better understanding of the business.

[cameronfen]

Read the article here.  He seems to come to a conclusion that it is a fraud. 

 

http://thevariantview.com/2012/08/30/screening-100-microcaps-two-that-missed-the-cut/

 

When I tried talking to management I couldn't get a response, but I do find it suspicious that if you look at insider ownership, that insiders are selling.  (The annual reports report share holdings).  If your stock is dirt cheap why would you be selling? 

 

On the bright side, all the management and the board seem to be real people.  I looked them up on the white pages/Columbia medical school for Dr Chitra Saxena. 

[wknecht]

Thanks very much cameronfen. I had not seen this and it is the type of disconfirming evidence I was looking for.  Pretty serious allegation, but the author actually makes some good points and has done a decent amount of legwork.

 

This risk indeed seems elevated to me (even more so than other microcaps), but for a few reasons I previously limited my search to googling people as you mentioned. Serves me right for not waiting to hear back from management or raising the skepticism.  I feel a little foolish (not to mention slightly poorer) doing an immediate 180, but his points are hard for me to rationalize away. So I feel more comfortable selling at least until I get more facts.

 

Would be curious to know what else you or others have learned about the company. Obviously would prefer to see buying, but the insider selling by itself is not a huge red flag to me because if I recall, it totals just a couple percent spread over a few years (and has only been one insider). Combined with the fact that the company's young is a little suspicious though.