The efficient markets hypothesis suggests that the prices of shares will always fully reflect all available information (implying, for one thing, that its impossible to beat the market). But for that to be true, surely wed never see share prices move unless theres new information, would we? But that happens every day.
Gene technology
Look at Oxford BioMedica (LSE: OXB). The shares spiked 8.7% this morning, on no news, though as I write the gain stands at 2.7% with the price at 4.25p.
Oxford BioMedica operatesin the field of gene therapy, so theres plenty of potential, and I think there are good reasons to expect good things here. Although there are no profits yet, the company has been issuing a stream of positive news the most recent of which was approval from UK regulators for its newest development facilities. And the firms LentiVector delivery platform sounds very promising.
With the shares having fallen 68% since their March 2015 peak, I see the biggest risk to shareholders now being future dilution. The firm burned 14.9m in operational costs last year with a further 16.7m in capital expenditure, and the 9.4m cash on the books at 31 December had to be boosted by a 7.6m share placing in February. But its a measured risk, and it could be profitable.
Oil rising
There are better understood risks at Premier Oil (LSE: PMO), whose shares are up 4.3% to 73.3p so far today, ahead of first-half results due on Thursday. The recovery in the price of oil since the start of August has helped too, as thats a key measure of Premiers potential ability to deal with its big debt burden and thats the thing that outweighs most other considerations at the moment.
Cheap oil did enable Premier to snap up E.Ons North Sea assets at a knockdown price, and as theyre productive theyre already adding to the bottom line. The month-by-month deferral of testing of the firms financial covenants while its in discussions with lenders, coupled with a recent promising Bagpuss well result, suggest to me that its in nobodys interest to force Premier into default and that a debt deal will be struck.
The shares are on a price to book value ratio of around 0.7 at the moment, and thats based on current oil prices. A sustained recovery is going to make that even more attractive, and Im happy to keep holding Premier Oil shares.
Another ARM?
Processor designer Imagination Technologies (LSE: IMG) shares are up 3.7% to 208p today, and are now up 90% since their 2016 low point in January. Are people hoping for a takeover approach after ARM Holdings was snapped up by Japans Softbank? If they are, I think they could be making a mistake, as Imagination Technologies doesnt have the same track record of meteoric growth. In fact, after several years of declining earnings resulting in a reported loss in the year just ended, the firm is very much ina turnaround phase.
In Imaginations full-year report last month, chief executive Andrew Heath spoke of a particularly challenging year, but also of a significant restructuring of the business which from here on will be an IP licencing business.
Theres definitely potential here, but on a forward P/E of 38, I think Id hold fire for now.
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Alan Oscroft owns shares of Premier Oil. The Motley Fool UK owns shares of Imagination Technologies. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
