Not all low-priced stocks are necessarily cheap, of course. In fact, certain low-priced stocks deserve their cellar-level prices. That's how some pros regard Chantal Pharmaceutical, which traded at 14 earlier this year. It has since crashed to 4. So has it bottomed?
Not by a long shot, says Evan Sturza, editor of Sturza's Medical Investment Letter. He thinks the stock is headed for less than a dollar. Why? In the past 10 years, he asserts, the company's equity, working capital, and cash have dwindled to a point where Chantal now faces ouster from the NASDAQ market, where its stock is traded. While the company has raised some $30 million over the past 10 years, notes Sturza, it now has shareholder equity of just $600,000--way below the required $1 million. In its Oct. 12 audit report, Ernst & Young says Chantal, as a development-stage company, continues to be primarily dependent on license fees or its ability to raise additional capital. "These conditions raise substantial doubt," it says, "about Chantal's ability to continue as a going concern."
"The situation has turned scary," Sturza warns. Chantal's 10-year effort to develop a product called Cyoctol for the treatment of both acne and hair loss has "languished" in tests for seven years, says Sturza. Initial test results have not been good, he notes.
The company says Sturza's comments are "false and materially misleading." With its limited financing, says CEO Chantal Burnison, the company has developed three patented compounds--Cyoctol, Ethocyn, and Metcyclor. Test results have been praised by scientists, adds Burnison. Chantal is now trying to raise additional funds through a private placement to meet NASDAQ requirements, she says.