RingCentral Inc

RingCentral Inc (NYSE: RNG) is a Software & Computer Services Company offering SaaS (software-as-a-service) solutions to support modern communications to businesses.

Investment Highlights - RingCentral Inc – Expensive at USD 372.94

• Despite the higher revenue forecast for FY2020, the Company expects profitability margins to remain in negative the zone, reflecting an inability to control operating expenses effectively.
• In the last one month, the Company delivered a negative return of ~3.84% and delivered lower returns compared to the benchmark Index.
• As per valuation metrics, EV/Sales and Price/Earnings multiples of the RingCentral Inc are currently higher as compared to the corresponding multiple of the Software & IT Services industry, reflecting overstretched valuations.
• From the technical standpoint, 90-day RSI is supporting downward movement (around 57 level), which means the stock price could decline in the short term.

Key Risks

• Due to the Covid-19 crisis, the Company might not be able to deliver the project on time or project cancellations by customers, which could put financial stress on the business.
• Moreover, failure to adopt the technological changes can reduce the level of business. 

Financial Highlights – Q3 & 9M FY2020 (30 September 2020) (released on 9 November 2020)

(Source: Quarterly Report, Company Website)

• In the third quarter of the financial year 2020, the total revenue surged by 30% to $304 million, and subscriptions revenue increased by 33%.
• Due to the higher cost of sales and operating expenses, the loss for the period increased in the Q3 and 9M of the financial year 2020.
• The cash balance as on 30 September 2020 increased to $746 million (31 December 2019: $344 million), reflecting one-time payment related to a strategic partnership.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Conclusion

The Company has shown a decline in financial performance in the first quarter of the financial year 2021. Despite the higher top-line performance, the bottom-line performance declined and remained in the negative zone. The Company needs to manage its operating expenses effectively unless it results in further deterioration in financial performance in the coming years. The Company reported higher cash balance, with the well-positioned balance sheet. RNG raised range for subscriptions revenue, representing growth of 31% on an annual basis and expects 29% annual growth in total revenue. The Company expects GAAP operating margin range to be in the negative zone for FY2020. Presently, the company is trading near a 52-week high, raising doubts at its upside potential at current prices. The stock made a 52-week low and high of USD 134.85 and USD 405.46, respectively.

Based on the factors as highlighted above, we believe the stock of RingCentral Inc is “Expensive” at the closing price of USD 372.94 (as on 19 January 2021), with support from few catalysts needs to be evaluated at a later stage such as actions taken to control the operating expenses effectively.

Obseva SA

Obseva SA (NASDAQ-GS: OBSV) is a Switzerland based clinical-stage biopharmaceutical Company. The Company is focused on unmet needs in reproductive health of women.

Investment Highlights – Obseva SA – Avoid at USD 4.40

• In the third quarter and nine months period of FY2020, the Company did not generate any revenue and reported a decline in liquidity position with the poor balance sheet.
• The Company has reported a negative ROE (return on equity) of 105.30% in Q3 FY2020. The Company’s ROE remained in the negative zone from the past four years.
• As per valuation metrics, Price/Book Value multiple of the Obseva SA is currently higher as compared to the corresponding multiple of the Biotechnology & Medical Research industry, reflecting overstretched valuations.
• From the technical standpoint, 14-day RSI is in the overbought zone and is supporting downward movement (around 92 level), which means the stock price could decline in the short term.

Key Risks

• Any change in regulations and government policies could affect the overall business of the Company.
• The covid-19 outbreak has resulted in disruptions in clinical trials which will have a negative impact on the Company’s performance.

Financial Highlights – Q3 & 9M FY2020 (30 September 2020) (released on 5 November 2020)

(Source: Quarterly Report, Company Website) 

• In the third quarter and for nine months period of FY2020, the Company did not generate any revenue and witnessed a decline in expenses for the period.
• Driven by lower operating expenses, the profitability margins in Q3 and 9M period improved but remained in the negative zone.
• The cash balance as on 30 September 2020 declined to $50,597 thousand (31 December 2019: $69,370 thousand).

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company has shown an improvement in financial performance in the third quarter and first nine months period of the financial year 2020. The Company did not generate any revenue, and Bottom-line performance has improved, while profitability remained in the negative zone. Obseva is in the development stage and hence rely on grants and cash balances to carry on all the business activities. The Company witnessed a decline in liquidity position and reported a poor balance sheet. The Company’s operations were impacted by the outbreak of covid-19 pandemic, as it resulted in disruptions in supply chain and clinical trials. The stock made a 52-week low and high of USD 1.63 and USD 6.30, respectively.

Based on the above rationale, we have given an “Avoid” recommendation on Obseva SA at the closing price of USD 4.40 (as on 19 January 2021), and with support from few catalysts needs to be evaluated at a later stage such as successful phase 3 trials of PRIMROSE 1 and PRIMROSE 2.

Synthetic Biologics Inc

Synthetic Biologics Inc (AMEX: SYN) is a Pharmaceuticals & Biotechnology Company. The Company is engaged in the business of development of therapeutics for the treatment of GI (gastrointestinal) diseases.

Investment Highlights - Synthetic Biologics Inc – Avoid at USD 0.851

• The Company remained in the development stage and did not generate any revenue in Q3 and 9M FY2020 and reported a loss for the period.
• In the last one week, the Company delivered a negative return of ~2.75% and delivered lower returns compared to the benchmark Index.
• As per valuation metrics, Price/Cash Flow multiple of the Synthetic Biologics Inc is currently higher as compared to the corresponding multiples of the Biotechnology & Medical Research industry, reflecting overstretched valuations.
• From the technical standpoint, 14-day RSI is supporting downward movement (around 64 level), which means the stock price could decline in the short term.

Key Risks

• The Growth of business is dependent on external funding, which is difficult to get amid the weak internal cash generation.
• Any failure to meet the quality and comply with regulatory laws could lead to increased cost and even recall or suspension of products.

Recent News

On 22 December 2020, Synthetic Biologics announced the receipt of approval for Phase 1b/2a clinical trial of SYN-004 from IRB (Institutional Review Board) at St. Louis based Washington University School of Medicine. The Company expects to begin enrolment of patients in Q1 2021.

Financial Highlights – Q3 & 9M FY2020 (30 September 2020)

(Source: Quarterly Report, Company Website) 

• In the third quarter and for nine months period of FY2020, the Company did not generate any revenue and witnessed a decline in expenses for the period.
• Due to lower research and development expenses, the profitability margins for the period improved but remained in the negative zone.
• The cash balance as on 30 September 2020 declined to $6,005 thousand (31 December 2019: $15,045 thousand).

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company has shown an improvement in financial performance in the third quarter and first nine months period of the financial year 2020. The Company is in the development stage and hence rely on grants and cash balances to carry on all the business activities. The operations are financed by the sale of equity securities by private placements. The Bottom-line performance has improved, while profitability remained in the negative zone. Synthetic Biologics witnessed a decline in liquidity position and reported a poor balance sheet. The Company’s operations were impacted by the outbreak of covid-19 pandemic, as it resulted in disruptions in clinical trials. The stock made a 52-week low and high of USD 0.2522 and USD 1.70, respectively.

Based on the above rationale, we have given an “Avoid” recommendation on Synthetic Biologics Inc at the closing price of USD 0.851 (as on 19 January 2021), and with support from few catalysts needs to be evaluated at a later stage such as new approvals received and focus on executing business objectives.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.