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Zafgen (NASDAQ: ZFGN)

July 26, 2016 @ 12:13pm – $3.10

Zafgen (ZFGN) shares offer real opportunity for near term price appreciation.

 

They tried to develop a new drug and failed terribly. How and why it doesn’t matter, in this instance, because buyers around the $3.00 price level don’t need to have confidence in the management.

 

Current management now presents new plans to develop a new drug. I hope to meet the management, and I’ll let you know my impressions if and when I meet them and hear their story. Right now I don’t care about their story. Right now, this is strictly an opportunity to buy shares in a company (Zafgen) with an $80 million market cap which has about $150 million in cash.

As of July 26, 2016, Zafgen has a Mullaney Stock Risk Indicator score of 69, which indicates a relatively low risk level.

Read more about the MSRI at our other site StockRiskReports.com.

ZFGN 7-26-16

First, there are three obvious risks, that I see. And there are three potential ways current buyer’s may make money on the stock.

 

Known Risks:

1. The stock may never rise because investors have no confidence in management;

2. The company may get a class-action law suit by angry investors (or others); and/or

3. Investors fail to buy stock because they worry that the company will burn through the cash without adding to shareholder value.

 

Ways to Profit:

1. Bottom fishing investors, like us, buy the stock up, so the market cap is nearer their cash level. If that happened, we’d nearly double our money.

2. Management (or others) take the company private at higher prices, and/or

3. Investors begin to see meaningful potential in the new drug the existing management is promoting. There are millions of investors who are willing to pay 3, 5 even 10 times a company’s current net assets if they see even greater potential. If the optimists start buying the stock could rise a great deal; 12 months ago optimists paid $48 a share.

Remember, I told you there was no such thing as a “Perfect Trade”. That said, in general, buying a company with no debt, and for no more than 60% of its net cash assets is a swell way to gamble. Good luck with yours.

-Ray

 

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