Cosmos Holdings May be a Long-Term Buy with Short-Term Risk

Key Points

• COSM stock is up 618% in November, likely due to a short squeeze. 
• The company does have an appealing business model and may be genuinely undervalued. 
• But, investors need to weigh a high level of short interest along with the high probability of a reverse stock split in the near future. 
• Long-term investors may want to wait for more clarity on the board’s actions before taking a position.  

   

Shares of Cosmos Holdings (NASDAQ: COSM) stock are up 618% in November. This penny stock has gone from trading for actual pennies per share to 68 cents per share at the time of this writing. The company has had some favorable news to report. But this has all the earmarks of a short squeeze. 

Price movement like what’s happening with COSM stock can attract a lot of investors. Just look at what happened to stocks such as GameStop (NYSE: GME) and AMC Entertainment (NYSE: AMC) in 2021. But what comes up sharply can also drop at the same rate. In this article, we’ll look at why Cosmos Holdings may be worth your investment and where the risks lie. 

Serving Two Growing Markets

Cosmos Holdings is a vertically integrated pharmaceutical company. The company has its own proprietary line of nutraceuticals that it sells through several of its subsidiaries. It also distributes a broad line of branded generic drugs and OTC pharmaceuticals that have lost patent protection.  

According to its October 2022 corporate presentation, the company partners with several of the world’s leading pharmaceutical companies including Pfizer (NYSE: PFE), GSK (NYSE: GSK), and AstraZeneca (NASDAQ: AZN).  

Demand for pharmaceuticals will continue to remain strong with an aging population and the continued search for treatments for diseases such as diabetes and cancer. But investors should also pay attention to the neutraceutical side of the business. According to the company, the global neutraceuticals market is expected to reach $988 billion by 2030; up from $455 billion in 2021. That’s a compound annual growth rate of 9%.  

One reason for this is the Covid-19 pandemic which has caused people to reassess their personal health. For an increasing number that means considering products, like dietary supplements and functional food, that they may have previously dismissed.  

To that end, on November 29, 2022 the company announced that it is now in the development phase for one of its products, CCX0722, which the company says will be “an innovative product for obesity and weight management...” COSM stock jumped 36% on just that news and, so far, is holding those gains. 

What Could Go Wrong? 

Penny stocks are attracting the attention of investors and with good reason. These “inexpensive” stocks can supply the growth that investors are looking for without having to put a lot of capital at risk.  

But many penny stocks have that designation for a reason. Many of these companies are not profitable and that’s the case with Cosmos Holdings. The company is generating revenue, but profitability seems to be some time away. 

That being said, you can make a case that COSM stock is trading below the intrinsic value of a company that has a recorded annual revenue of just over $56 million.  

But there are two notable issues. First, the amount of short interest on the stock has jumped 11.8% in the month ending November 15, 2022. That puts total short interest at over 24%. That’s a set-up for a trader, but not for an investor who is looking to take a long position.  

The second issue is that the company has received a delisting notice from the NASDAQ exchange. In a press release, the company says it is taking all the necessary steps to get into compliance. One of those steps may include a reverse stock split. The company is introducing a proposal at its annual shareholders meeting on December 2, 2022 that would give the board of directors authority to proceed with such a split to remain listed on the exchange.  

Know What You’re Buying with COSM Stock? 

Is it time for investors to climb aboard? A reverse stock split, which is looking increasingly likely, is generally not good for investors. But there is a saying you get a stock at the price you deserve. If you first bought the stock when it was priced much lower than today, your average cost basis is lower than the current share price. In that case, you’re in the money. If you believe that Cosmos Holdings can move higher, you shouldn’t be that concerned about a reverse split. 

But if you don’t currently hold shares, the best course of action is to proceed with caution. In fact, you’ll probably want the share price to come down a little from its current level.