A Rough Summer Has Knocked Calyxt Down

So far, not so good for my late June high-risk/high-reward call on Calyxt (CLXT). The “high risk” part has certainly come through promptly, but shareholders have seen the shares sell off about 25% after a summer that certainly offered more bad news than good, highlighted by the surprising resignation of the CEO in late August only a couple of months after the equally-surprising resignation of the CFO, and a decision in Europe that puts the acceptance and development of gene-edited crops at risk.

Assessing these developments is not easy. Both executives may have had disagreements with the board of directors and/or Cellectis (CLLS), which still controls the company, and those disagreements may have included the unusual business model Calyxt is pursuing with its high-oleic soybeans and other consumer-oriented products. It is also possible that they saw fundamental issues with the technology and/or its path to commercial acceptance. Unfortunately there’s really no way to know at this point, and the one remedy I do have is to increase my discount rate to account for greater risk and uncertainty.

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A Rough Summer Has Knocked Calyxt Down

S & W Seed Trying To Restructure, But Liquidity Looms As A Threat

S & W Seed (SANW) is trying to restructure away from an alfalfa market that has proven far more challenging than expected, and as I said in my last update, I like the company’s plan to expand into other crops like sorghum and sunflowers (I’m less bullish on stevia). Unfortunately, as I noted in that last piece, S&W doesn’t have much room to maneuver, as the company’s liquidity is low and access to capital is going to come on less than favorable terms to current shareholders.

I continue to believe that this stock is basically a binary bet, and I don’t tend to like to have those in my portfolio. While I think the company’s efforts to leverage new alfalfa varieties developed with Calyxt (CLXT) have promise, as does the expansion into sorghum and sunflowers, it sounds like the next year is still going to be challenging for the alfalfa business and I’m concerned about the amount of dilution the company will experience in pursuit of a business model that generate meaningful cash flow (or acquisition interest) down the line.

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S & W Seed Trying To Restructure, But Liquidity Looms As A Threat

S&W Seed Has To Rebuild Its Growth Credibility

Small-cap growth stories rarely manage to avoid bumps in the road, but the bumps that S&W Seed (SANW) have hit have been larger than average, taking the shares down almost 40% since my article on the company back in October of 2016. In addition to some ongoing challenges in growing conditions, the company has seen serious destocking among major customers in Saudi Arabia and the resignation of its CEO, not to mention meaningful reductions in guidance and expectations.

S&W isn’t past a point of no return, but there’s a fair bit of debt on the balance sheet, not much likelihood of strong near-term cash flow, and a lot of variables that are outside of management’s control. This company could still generate $200 million or more in revenue within the next 10 years, but this is really only a story suitable for investors who can take on risks that are well above average.

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S&W Seed Has To Rebuild Its Growth Credibility

S&W Continues To Plant Seeds For Future Growth

The ag sector has shown a little life since the last time I wrote on S&W Seed (NASDAQ:SANW), but this small grower of alfalfa seeds has done better than most with better than 15% improvement in the share price since the time of that late March piece. While the company's growth in recent quarters has been hampered by low inventories (caused by disappointing yields due to weather), the company has shown good discipline with its seed pricing and sourcing, as well as its corporate costs.

The rebound in the share price has taken some of the easy money off the table, but the company has made multiple moves that should improve the stability and growth potential of the business over time. Diversifying into new crops seems like a risk worth taking, but the key for the company, in my view, remains its ability to improve seed prices and push adoption of higher-value seeds by emphasizing the yield and value advantages of its hybrids.

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S&W Continues To Plant Seeds For Future Growth