A 'Miss' Provides Just the Opening I've Been Waiting for With This Biotech
Here's how I established a new position in a mid-cap-growth company that's treated me right.
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I made quite a bit of coin on ADMA Biologics ADMA from around mid-2022 to mid-2024. The stock had quite a run over that time. And as it turned out, I left a fair bit of profit on the table as the company's management has done a commendable job executing their game plan and delivering shareholder value.
I have been waiting for a buyable dip in the stock to establish a new positon in this solid mid-cap growth company. Late this week, I finally got the pullback I was waiting for and opened a new holding via covered call orders.
One of the many things I like about ADMA Biologics is the options against the equity are liquid and provide nice premiums. This makes this simple option strategy a good way to reestablish a position in this "old friend."
ADMA Biologics manufactures and markets specialty plasma-derived biologics. It has a couple of key products, the most important of which for ADMA’s growth and profits is ASCENIV, which is approved for the treatment of primary humoral immunodeficiency.
The company completed building out its original network of 10 plasma collection facilities back in late 2023 after many years bringing them online one by one. In the first quarter of this year, the FDA approved a key manufacturing enhancement to ADMA’s yield enhancement production process. This should result in a 20% improvement in immunoglobulin production going forward, which should boost margins nicely.
The stock was off some 15% this past week, providing an opportunity to buy this growth play at lower entry points. The trigger to the selloff was a first-quarter "miss" on Wednesday. That said, the company delivered numbers most growth concerns would be quite happy to report.
Revenues were up just over 40% on a year-over-year basis, which missed the analyst consensus. GAAP net income came in at nearly $27 million, up just over 50% from the same period a year ago. Adjusted net income was just over $33 million, an improvement of 87%.
Guidance was solid as well. After posting revenues of just over $425 million in 2024, leadership has projected the company will post at least $500 million in revenues this year and over $625 million in 2026. Managment also expects adjusted net income of at least $175 million in 2025 and $245 million the following year. The company has stated it sees few to no impacts from tariffs.
ADMA is using its quickly improving free cash flow to pay down the remaining debt on its balance sheet and management also just announced a $500 million stock buyback program. At current trading levels, that repurchase authorization would remove just over 10% of the outstanding float in the shares.
While the market was disappointed by the revenue miss in the first quarter, both Raymond James ($32 price target, up from $25 previously) and Mizuho Securities ($35 price target, up from $32 previously) reissued their Buy ratings on the stock and boosted their price targets following first-quarter results. I think that will turn out to be the right call.
The shares are currently trading right around the $20 level, providing a good entry point for longer-term investors. But I can get an even lower entry point or a good potential return on ADMA with the following covered call strategy.
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Option Strategy
This is how one can initiate a holding in ADMA with a covered call order. As a reminder, covered call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.
Using the January $19 call strikes, fashion a covered call order with a net debit in the $15.50 to $15.70 a share range (net stock price - option premium).
This strategy provides downside protection of 23% with upside potential of just over 23% even if this equity trades flat over the option duration.
At the time of publication, Jensen was long ADMA.
