When the Last Seller Pops

Good morning, Armchair Army,

Welcome to today's edition of The Armchair Analyst, a 5-minute daily update on the ASX life-sciences sector.

Have you ever played one of those tower defence games?

A swarm of “bad guys” trying to get past your towers.

If you let too many through…

You lose.

My favourite was always the one with the balloons.

At the end of a round, once you’ve popped the giant swarm of balloons, you finally get a break to reset your defences for the next round.

This is what it can feel like when someone is selling your stock.

Swarms of sellers putting pressure on the share price.

Relentless.

No matter how many buyers are set up.

No matter how much newsflow the company has put out.

The sellers just keep coming.

Each wave has to be absorbed.

… and eventually, the sellers run out of stock.

The level ends…

And for the first time, there are “blue skies” for the stock to move up.

(Until the next level starts and the wave of sellers enters at the next higher price)

To demonstrate this phenomenon, I want to highlight TWO ASX-listed healthcare companies from the last two weeks.

FIRST, Trajan Group Holdings (ASX: TRJ), up from 15.5 cents to a high of 28 cents in a week:

SECOND, Micro-X (ASX: MX1), up from 15 cents to a high of 54 cents (260%) in 10 days:

So… how do you know when the bottom is in for these… quote… “undervalued” stocks?

I’ll tell you.

It’s when the last seller is defeated.

But first…

Paradigm Biopharmaceuticals (ASX: PAR) Phase 3 trial interim results did not meet continuation criteria because efficacy fell below thresholds. (PAR)

🪑 In the release, the company flags “a significant amount of missing data” in the trial.

My first instinct was this is the biotech equivalent of "the dog ate my homework," but after talking to some people close to the company, there may be more to the story.

(A bit of a stuff-up from one of the CROs, according to my sources).

If that’s the case (and the company hasn’t said anything to the market yet, so it is still an “if”), it might be a bad trial, NOT a bad drug.

Shame.

Mesoblast (ASX: MSB) receives FDA approval for the T-cell Proliferation Inhibition BioAssay (TIBA) to enhance quality control for its commercial Ryoncil product. (MSB)

🪑 Very nice, considering how long it took the FDA to approve its first potency assay…

Nexsen (ASX: NXN) has stopped testing the current version of StrepSure to make targeted performance improvements, pushing its planned US FDA submission back by around three months. (NXN)

🪑 Reading between the lines, it looks like the prevalence of the target disease - GBS - was not high enough to properly power the study.

Still, I was hoping to see some specificity and sensitivity data, even from the interim results.

Nexsen (ASX: NXN) enters suspension (essentially a second trading halt) for a “contract regarding additional devices”. (NXN)

🪑 It looks like the two news items are not linked.

More a case of strange timing than anything.

Genetic Signatures (ASX: GSS) schedules its EGM to vote on BCAL Diagnostics' 249D board changes. (GSS)

🪑 Looks like the only thing GSS shareholders will be voting on is the 249Ds, NOT the merger with Microba at this stage.

There are still some appeals to shareholders about the merger, but it is still in the “proposed” stage.

I did think that this table was a bit of a cheeky jab, though…

(and not an exact apples-to-apples comparison, given the three companies are at different stages of commercialisation)

BCAL Diagnostics (ASX: BDX) launches a Multi-Cancer early detection test from Avantect in Australia, with an initial rollout in Sydney and Melbourne. (BDX)

🪑 Very nice.

Cleo Diagnostics (ASX: COV) begins developing a prototype multi-marker screening test for early-stage ovarian cancers. (COV)

🪑 This is Cleo's big blue-sky product. Good to see development has started.

Healius Limited (ASX: HLS) is in a trading halt pending the sale process for its Agilex Biolabs subsidiary. (HLS)

🪑 Cash it in.

Prescient Therapeutics (ASX: PTX) successfully raises $6 million via a Share Purchase Plan and Placement. (PTX)

Australian healthcare startup Heidi Health secures US$100 million in a Series C round led by Blackbird, valuing the company at US$900 million. (Business News Australia)

🪑 Huge!

Perth-based medtech company Lubdub Technologies closed a $6 million seed financing round. (Business News) 

🪑 Nice win for early medtech in Australia.

Promethean BioPharma opens $3.2M crowdfunding raise as cannabis pain tablet nears TGA decision. (Business News Australia) 

🪑 Not sure the TGA will approve this one, given that the trial didn’t achieve statistical significance across 155 patients.

Markets are a group of buyers and sellers.

The share price reflects the “price” someone is willing to pay for a stock.

Value is not always reflected in the price.

… especially in microcap land.

(That’s the edge that retail investors can get)

If there is one big seller and not that many buyers, you can get a bloodbath.

Particularly on low-liquidity stocks.

This is the death spiral:

Shareholders sell → Price Falls. 

→ Buyers are Afraid → Shareholders Sell More.

→ Falls below $100 million market cap → Institutional investors can’t buy.

→ Company not prepared for “retail story” → Shareholders Sell More.

… and so on.

Things that can compound this death spiral are poor company performance and low liquidity.

But eventually, a stock gets SO CHEAP because a seller who wants out won’t care about the price.

They’ll just sell.

Eventually, the stock can be oversold… but it only becomes an interesting trade when that last seller is gone.

Let me illustrate with two companies…

Earlier this year, I wrote an article about a company as part of my Biotech 165 Challenge; it was on Trajan Group Holdings (ASX: TRJ), and titled: 

“Why Cheap Stocks Can Still Be Hard Trades”

That was at 67 cents, the stock is now 25.

Trajan manufactures and sells precision tools and components for accurately measuring and assaying ‘things’.

What things? 

If it can be sampled, it can be measured.

Blood, water, food, rocks, carbon, tissue. TRJ has thousands of products and SKUs across multiple verticals.

Last financial year, the company did $161 million in revenue and nEBITDA of $13 million.

There were some headwinds.

In particular, Trump’s tariffs and FX movements meant the company missed its growth targets. 

The stock was sold down, and down and down.

Until recently, when it hit 15 cents… and a market cap of just $20 million.

(One-eighth of its last financial year’s revenue)

But it’s bounced back.

The first catalyst?

A notice from the seller that it was ceasing to be a substantial shareholder:

The second catalyst?

A private “off-market” trade to clear out this seller's remaining shares in the company.

(it shows up as a big volume spike on the chart)

That was the last seller to go.

The final balloon in our tower defence game popped, clearing the blue sky for the stock to move up.

… then the buying begins.

Those shareholders that just got loaded up at ~15 cents.

They go tell their friends.

They start selling the story.

They buy more of the stock themselves.

With the sellers gone, the only way is up.

… until the next wave of sellers comes in at a high price.

Now, if a stock 3-bags in two weeks… it's hard to ignore.

This was the first time I came across Micro-X, so I had to do some homework for this article.

Micro-X has a technology that can make X-rays and CT scanners lighter and easier to use.

The company has been looking for “product-market fit” for this technology for a while.

Healthcare?

Defence?

Airport Security?

The company was “Jack of all trades, Master of none”.

Recently, the company did a big reset.

(Cost cutting, management change, product focus, etc…)

They go through it in detail in the “investor day”:

Like Trajan, there had been big sellers in the stock (and not without reason… overpromise and underdeliver).

BUT, the company recently completed a secured convertible note raise.

Conversion price?

$0.08 cents.

Almost double the share price at the time.

About 4 weeks later, major shareholder Perennial Ventures ceased to be a substantial shareholder:

Again.

Just like the balloon tower defence game, you can see all of the selling volume replaced with buying volume, leaving the blue skies for the stock to move:

So, how do you spot the final seller?

The substantial-holder notice is the first clue.

It tells you a big shareholder has fallen below 5%.

(It does NOT tell you they’ve sold their last share.)

Then watch the volume.

With Trajan, a big off-market trade followed the notice.

With Micro-X, heavy selling volume followed after Perennial ceased being a substantial shareholder.

THEN…

Are buyers still getting hit with stock every time the price tries to move?

Or has that wave finally stopped?

So the three things to look out for:

THAT is when you know that the last balloon has popped… and the stock is free to move on to the next level.

See you all next week,

The Armchair Analyst.

PS. No newsletter tomorrow as it’s a public holiday here in Melbourne. See you all next week!