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Insider Buying Propped Summers Value Partners’ Massive Gains in Bioanalytical Systems (BASI)

Jose Karlo Mari Tottoc
·5 min read

Summers Value Partners, an investment management firm, published its 'Summers Value Fund LP' fourth-quarter 2020 Investor Letter – a copy of which can be downloaded here. A net return of 14.7% was recorded by the fund for the Q4 of 2020, below its Russell 2000 benchmark that returned 18.40%. You can view the fund’s top 10 holdings to have a peek at their top bets for 2021.

Summers Value Partners, in their Q4 2020 Investor Letter said that they acquired a new position in Bioanalytical Systems, Inc. (NASDAQ: BASI) after series of insider stock purchases attempts. Bioanalytical Systems, Inc. is a company that provides research and development resources and then sells the information to biotechnology, pharmaceutical and medical related companies. Bioanalytical Systems, Inc. currently has a $136 million market cap. For the past 3 months, BASI delivered a massive 145.02% return and settled at $12.30 per share at the closing of January 27th.

Here is what Summers Value Partners has to say about Bioanalytical Systems, Inc. in their investor letter:

"Bioanalytical Systems, doing business as Inotiv, is a clinical research organization (CRO) based in West Lafayette, Indiana. The company was founded by Peter Kissinger, a former professor at Purdue University, in 1974. The company went public in 1997, but the stock declined for the next twenty years as the company struggled to grow and generate profits. In 2017, the company hired Bob Leasure, Jr., a turnaround expert, to reverse the company’s fortunes. Since taking the CEO role, Mr. Leasure has changed the management team from top to bottom, made several tuck-in acquisitions to bolster the company’s service offering and has re-positioned the company for future growth.

Bioanalytical Systems provides pre-clinical development services to the biotechnology, pharmaceutical and medical device industries. At a high level, the company assists its customers with new drug and device development before they enter the clinical setting. Its customer base primarily includes smaller biotech companies that lack the infrastructure and money to run pre-clinical studies in house. The CRO industry is benefitting from several key tailwinds including a secular trend of clients using outsourced development partners and a record amount of life sciences funding going toward the research and development (R&D) of new molecules and therapies. According to EvaluatePharma©, total R&D spending across the global pharmaceutical industry is expected to grow 3% annually and reach $223 billion by 2026.

We initially reached out to the company one year ago following a round of insider stock purchases, but our calls and emails to the CFO were not returned. We decided to pass on the opportunity, and the pandemic ensued shortly thereafter, which took our attention elsewhere. However, the insider buying trend continued up until August of last year. When the company announced that it would be presenting at an investor conference in September, we tuned in. The CFO who did not return our calls and emails was no longer at the company, so we reached out to the new CFO following the presentation. After an initial conversation, we liked what we were hearing. Thankfully, the stock had not appreciated since our first attempt to contact the company.

Bioanalytical Systems has invested heavily in deferred maintenance and capital equipment over the past few years spending roughly $13 million. The company now has over $15 million in revenue capacity that it can sell to its customers at high incremental margins. The recently released book-to-bill ratio of 1.48 implies strong growth in future periods and we are modeling sales greater than $70 million in FY21. We also believe the company will continue making tuck-in acquisitions as it has done since the new team changed the strategic direction three years ago. In short, the improvement in operating performance by the new management team is beginning to bear fruit.

The situation at Bioanalytical Systems checked a lot of boxes for us: significant insider buying, a new management team, a company that was not well known or covered by the investment community, a meaningful and growing sales base, and an industry with a number of powerful tailwinds. As such, we began to aggressively buy the stock in late September. We were able to establish a meaningful position (roughly 8% of the portfolio) with an average cost close to $5 per share. While the stock was a key contributor to our performance in the second half of 2020, it still trades at a sizeable discount (~50%) to industry peers on an enterprise value to sales basis. We expect this discount to be closed as management executes against the strategy or the company is acquired by a competitor."

Easiest Md/PhD Programs to Get Into
Easiest Md/PhD Programs to Get Into

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BASI delivered a huge 135.18% return in the past 12 months. However, our calculations show that Bioanalytical Systems, Inc. (NASDAQ: BASI) does not belong in our list of the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 216% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 121 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website.

Disclosure: None. This article is originally published at Insider Monkey.