The Telstra Corporation Ltd (ASX: TLS) share price tumbled to a three-month low on Monday after the stock was downgraded by a leading broker.

Shares in Australia’s largest telco fell 1.9% to $3.05 when the S&P/ASX 200 Index (Index:^AXJO) declined 0.8% today.

If it’s any consolation to shareholders, Telstra’s peers also finished in the red. The TPG Telecom Ltd (ASX: TPG) share price slipped 1.2% to $7.36 while the Vocus Group Ltd (ASX: VOC) share price gave up 1% to $2.92.

Broker downgrade weighs down TLS share price

Telstra was the laggard as it was weighed down by JPMorgan’s downgrade. It cut its recommendation on the stock to “neutral” from “overweight”.

The move comes after the company posted Telstra’s disappointing FY20 profit results last week, which prompted the broker to cut its earnings forecast for the group.

“Our initial review has highlighted a number of significant structural challenges facing the company,” said the broker. “Furthermore, an estimated 4.2% dividend yield is not overly compelling.”

Structural headwinds

One of these structural challenges include the impact of the NBN eroding profit margins on Telstra’s fixed broadband business.

Rising competition on Telstra’s mobile division is cited as another headwind, while the COVID-19 travel restrictions have decimated its mobile roaming revenue.

Mobile is a key earnings driver for Telstra, which tried to lift prices on its mobile plan recently. That backfired as competitors doubled down on low prices to win market share from the market leader.

Telstra’s dividend is unsustainable on payout guidance

What is concerning for shareholders is the dividend. JPMorgan is forecasting a cut in the group’s annual payment to 13 cents a share from 16 cents.

That’s below consensus with the average broker estimate tipping a 14 cents a share payout. But JPMorgan believes 13 cents is all Telstra can afford. This is because that would represent 90% of Telstra’s forecast net profit – which is the top end of Telstra’s payout ratio.

“While Telstra does not provide dividend guidance, it indicated at the result that EBITDA would need to be ~A$7.5-$8.5 billion to maintain its 16cps dividend, well above guidance of A$6.7 billion,” added JPMorgan.

How Telstra can keep paying a 16cps dividend in FY21

However, not every broker agrees with this. Goldman Sachs believes Telstra could keep paying 16 cents as management may not strictly apply its payout ratio policy.

“Although 16cps is now unsustainable across FY21-22 on the existing payout policy, we note TLS further shifted its dividend focus to FCF [free cash flow] (i.e. TLS justified the 99%, out-of-policy EPS payout as this was well supported by cashflow),” said Goldman.

“Hence, we have not revised our 16c dps, believing Telstra will maintain this through FCF, if it believes that is on track for $7.5bn by FY23E.”

Goldman stuck to its “buy” recommendation on the stock, which is also on its “conviction list”. The broker’s 12-month price target on Telstra is $3.90 while JPMorgan’s target price is $3.40 a share.

More reading

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• What experts are saying about JB Hi-Fi’s profit results as the stock surges to record
• Millennials be warned! ASIC to examine irresponsible ‘social trading’
• These 3 ASX stocks just got upgraded by top brokers to “buy” today
• ASX 200 down 0.85%: JB Hi-Fi impresses, Altium shoots higher, Bendigo and Adelaide Bank sinks

Motley Fool contributor Brendon Lau owns shares of Telstra Limited. Connect with him on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Brainchip Holdings Ltd (ASX: BRN) share price has risen by 30% since last Tuesday, and 109% over the past month. This ASX-listed artificial intelligence (AI) company is the largest of its type in the world. It is currently developing what is known as a neuromorphic Akida chip, which will mimic the human brain and nervous system and is a first-of-its-kind technology.

Nevertheless, the company already has products in the marketplace that generate revenue. For example, the Akida neural chip is useful for facial recognition and pattern recognition. Accordingly, casinos use it to monitor patterns of play, payout amounts, dealer behaviour and much more. Many international airports also use the company’s products to detect terrorism suspects, as do 2 European subways to detect wanted criminals. 

What moved the Brainchip share price?

The Brainchip share price moved today after the company announced it has partnered with Magik Eye Inc., developers of revolutionary 3D sensors.  The agreement is to market a breakthrough solution for object detection, classification and gesture recognition by combining MagikEye’s invertible light 3D depth sensing technology and the Akida neuromorphic processor.

This opens up a new sales channel into Japan. Customers for fast 3D object detection and recognition includes robotics, automotive and emerging consumer products, such as virtual reality and others. The companies can jointly address gesture recognition in smart home applications, such as gaming and other consumer products. As well as, smart transportation and smart city applications are all primary markets for collaboration. This includes advanced driver assistance systems and autonomous vehicles.

Management commentary

In today’s announcement, Richard Wawrzyniak, principal analyst at market research company Semico Research Corp. highlighted that 3D imaging is attracting a good deal of interest in the market and commented that the BrainChip architecture is the “right fit for this class of operations”. He added:

It is not surprising their solution would be paired with the MagikEye’s Invertible Light Technology for real-time object detection in all types of applications, where low power and high throughput are valued elements for success. Semico believes this technology partnership is a winning combination for the market.

Commenting on the partnership, Louis DiNardo, Brainchip CEO stated:

Our relationship with MagikEye is exciting. The innovation brought to the market by their proprietary Invertible Light technology is impressive and this collaboration provides both companies an opportunity to address large and growing markets with outstanding technology to solve difficult real-world challenges.

Brainchip share price

The Brainchip share price rocketed by 17.5% during Monday’s trading, and is up by 30.5% since the open of trading last Tuesday. Its market cap is currently $345 million. Over the past month the Brainchip share price has risen by 113.6%, and it is up by 370%, year-to-date. 

More reading

• Brainchip share price surges 9% on new financing facility
• 3 unloved ASX growth shares that could make you rich

Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Australia is officially in recession, with the economy shrinking 0.3% in the March quarter. But this is a recession like no other – coronavirus lockdowns and travel restrictions may be shrinking the economy, but they are also redirecting spending.

Consumers unable to enjoy holidays and travel are shifting their spending to the home, resulting in booming sales for some. Here are three ASX retail shares raking it in regardless of recession. 

JB Hi-Fi Limited (ASX: JBH)

JB Hi-Fi sales have surged as customers set up home offices and invest in entertainment options. Full year sales grew 11.6% to $7.9 billion as customers spent more time working, learning, and entertaining at home.

This led to a 33.2% increase in profits which reached $332.7 million. JB Hi-Fi has also been investing in its e-commerce capacity, which has paid off with online sales up 50% over the year and 134% in the fourth quarter. This capacity will help the ASX retail share as online sales ramp up with Melbourne store closures. 

Kogan.com Ltd (ASX: KGN) 

Online-only retailer Kogan has shone in 2020 with a surge in active customers driving record performance. Gross sales increased 39.4% on the prior year to $768.9 million as customers shifted to online shopping in the face of store closures.

CEO Ruslan Kogan said: “There is a retail revolution taking place as more and more shoppers learn about the benefits of E-commerce.” This revolution resulted in a 55.9% increase in Kogan’s profits, which reached $26.8 million in FY20. This enabled the payment of a final dividend of 13.5 cents per share, up 64.6% on the previous year. 

Adairs Ltd (ASX: ADH) 

Omni-channel homewares retailer Adairs has benefitted from customers spending more time at home, and subsequently more on Adairs products.

Despite widespread store closures in April and May, the group grew sales 12.9% to $388.9 million in FY20. Online sales were a strong contributor, accounting for $124.2 million or 31.9% of total sales. Online furniture retailer Mocka, which Adairs purchased last year, saw sales increase 50.2%.

The strong sales growth led to a 19% increase in net profit after tax, which reached $35.3 million. This allowed Adairs to declare a dividend of 11 cents per share (fully franked).

Foolish takeaway

We might be in recession, but while lockdowns and travel restrictions continue, discretionary spend is being diverted to home furnishings and entertainment. That leaves these ASX retail shares to rake in the proceeds. 

More reading

• Fund managers have been selling these ASX shares
• What experts are saying about JB Hi-Fi’s profit results as the stock surges to record
• These 3 ASX stocks just got upgraded by top brokers to “buy” today
• ASX 200 down 0.85%: JB Hi-Fi impresses, Altium shoots higher, Bendigo and Adelaide Bank sinks
• Why Bendigo and Adelaide Bank, Kogan, NAB, & Treasury Wine are dropping lower

Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia has recommended Kogan.com ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Are you looking to buy some blue chip ASX shares for your portfolio this week? If you are, then I would suggest you look at the ones listed below.

I believe all three have the potential to generate solid returns for investors over the next decade. Here’s why I would buy these ASX blue chip shares today:

CSL Limited (ASX: CSL)

The first blue chip ASX share to consider buying is CSL. I think the biotherapeutics giant is the highest quality company on the Australian share market and in a great position to deliver solid earnings growth over the next decade. This is thanks to its world class facilities, leading therapies, and extremely promising research and development pipeline. The latter includes a number of therapies that have the potential to generate billions of dollars in sales over the next decade if successful. In addition to this, with the CSL share price down 19% from its high, now could be an opportune time to invest.

Goodman Group (ASX: GMG)

Another blue chip ASX share I would buy for the long term is Goodman Group. It is an integrated commercial and industrial property group which owns a high quality portfolio of assets. Management notes that its properties are a symbol of smart investment. It has strategically located modern, high quality properties in key gateway cities around the world. This has shortened the distance between business and consumers and put its customers ahead of the market. No wonder the likes of Amazon, DHL, and Walmart are among its tenants.

SEEK Limited (ASX: SEK)

A final blue chip ASX share to consider buying is SEEK. Although FY 2021 looks set to be very difficult because of the pandemic, I believe the job listings giant will bounce back strongly once it passes. And looking long term, I feel it can grow materially in the future thanks largely to its growing Zhaopin business in China. Given how this business has such a massive opportunity in a very lucrative market, I believe it will be the key driver of growth over the next decade. This should be supported by solid growth from its ANZ business, which continues to dominate the local market.

More reading

• The Starpharma share price jumps on new partnership deal
• 2 five-star ASX growth shares to buy in August
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• Why I’d buy today’s CSL share price over Mesoblast
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James Mickleboro owns shares of SEEK Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has recommended SEEK Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Hydrix Ltd (ASX: HYD) share price blasted off today (and that’s no exaggeration), gaining more than 253% to trade at 31.5 cents just prior to the market’s close. And this on a day when the All Ordinaries Index (ASX: XAO) is down 0.8%. So what’s driving the Hydrix share price, a small company with a market capitalisation of only $28 million?

Hydrix share price leaps on implantable heart attack warning system

The Hydrix share price took off after the medical product innovation company released an announcement to the ASX today reporting success with the first supply and implant of its AngelMed Guardian device.

AngelMed is the first implantable heart attack warning system to receive approval by the United States Food and Drug Administration (FDA). The company announced that four of its implants were performed in Singapore last week and that all four patients have now been released from hospital.

Hydrix medical field Clinical Engineers supported each implant via real-time remote support from Angel Medical Systems staff in the US.

The latest good news for Hydrix follows the company’s 13 March announcement that it had acquired an exclusive 7-year distribution agreement for AngelMed Guardian spanning eight Asia Pacific countries.

A significant milestone

Addressing the company’s latest success, Gavin Coote, Hydrix Executive Chairman said:

“The AngelMed Guardian implants are a significant milestone for Hydrix and AngelMed. This achievement demonstrates strong execution of our buy, build, invest strategy to create product revenue and earnings streams, and of equal importance, reflects progress in our aspiration to meaningfully improve a billion lives”.

Founder and Chairman of Angel Medical Systems David Fischell added:

“We are very pleased with the success of these first Asia Pacific implants and excited about the large potential market opportunity. It has been a global team effort in getting to this point…”

The implanted devices will gather data over a 2-week period to establish each patient’s baseline heart signal before the device is calibrated and the alarm configuration customised.

AngelMed Guardian uses artificial intelligence and machine learning algorithms to monitor patients’ heart signals to warn of acute coronary syndrome events, including silent heart attacks.

The company estimates 500,000 people annually suffer from an acute coronary syndrome event in the top four Asia Pacific countries it is initially targeting.

With today’s meteoric rise, the Hydrix share price is up 43% year to date.

More reading

• Telstra share price hit by broker downgrade today
• Brainchip share price rockets 30% in a week
• What recession? These ASX retail shares are raking it in
• Buy and hold these fantastic ASX blue chip shares
• Golden opportunity? A big reason why the gold price could surge higher from here

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Gold rush!

Much has been made of a certain metal of the yellow variety in recent times. That’s to be expected when an asset hits an all-time high. Gold caused quite a stir late last month when it surged past its 2011 record high of US$1,921 an ounce.

After racing as high as US$2,075, the gold price has now settled back around US$1,950, where it has hovered for the past week or so. Other precious metals like platinum and silver (in particular) have also been shooting higher in recent weeks. So with upward momentum seemingly stalling for now, where to next for ASX gold bugs?

Why has the gold price hit the roof?

Gold is traditionally a ‘risk-off’ investment asset, which means investors usually flock to it when there are concerns over the immediate future of ‘risk-on’ investments like ASX shares.

So it is somewhat confusing to see gold hit record highs when global sharemarkets are concurrently rising. My reading on this phenomenon is that investors are not too bullish on the medium-to-long-term outlook for the share market in light of the coronavirus pandemic. Add to this concerns over future inflation stemming from the truckloads of central bank cash injections into the global financial system and we have a perfectly mixed cocktail for a rising gold price.

Can the gold price go higher?

Now that gold has reached past its 2011 peaks (and is up nearly 30% in 2020 so far), I’m sure most of you are wondering whether gold can really climb higher from here.

Well, there is one commentator that answers a resounding ‘yes’ to this question. Reporting from precious metals news site Kitco.com points out that, although the gold price has hit new all-time highs, it still remains well-below it’s an inflation-adjusted all-time high. In fact, when you include the effects of inflation, gold has yet to even break it’s 2011 high. Let alone the inflation-adjusted record that was set way back in 1980.

Kitco tells us that it’s inflation-adjusted 2011 high is worth a price of US$2,149.69 an ounce today — a level not yet tested in 2020.

And if gold were at the same level today as 1980, adjusting for inflation, it would be commanding a price of US$2,722.18 an ounce. That’s another 40% on top of the current gold price.

For silver, the potential is even better. Today, one ounce of silver will set an investor back US$26.80 an ounce. If silver was to re-test the 1980 inflation-adjusted peak, it would need to be trading at US$160.59 an ounce.

Foolish takeaway

Just because gold (or silver) prices could go higher from here doesn’t necessarily mean they will. But personally, I am bullish on the medium-term outlook for precious metals, mostly due to the factors listed above. I think monetary debasement will come at a cost, and this cost could indeed see precious metal prices push higher in the years ahead. If you agree, you might want to invest with this in mind.

More reading

• Telstra share price hit by broker downgrade today
• Brainchip share price rockets 30% in a week
• What recession? These ASX retail shares are raking it in
• Buy and hold these fantastic ASX blue chip shares
• Hydrix share price rockets 250% following announcement

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Cochlear Limited (ASX: COH) share price is edging lower on Monday afternoon following the release of an update on its patent infringement case.

At the time of writing the hearing solutions company’s shares are down just over 0.5% to $199.05.

What was in Cochlear’s update?

This afternoon Cochlear announced that it has settled the claims for pre-judgement interest and attorney fees by the Alfred E. Mann Foundation for Scientific Research (AMF) and Advanced Bionics (AB).

According to the release, the parties have settled the claims for US$75 million. This is a small win for Cochlear given that AMF and AB were previously seeking pre-judgement interest of US$123 million and attorney fees of $15 million.

Though, this still remains conditional upon the outcome of an appeal by Cochlear to the United States Supreme Court. It is appealing against the judgement of US$280 million in patent infringement damages and post judgement interest against Cochlear and its US subsidiary Cochlear Americas.

What’s next?

Cochlear has agreed to file its appeal in the Supreme Court by no later than 15 September 2020.

In the meantime, it has agreed to deposit US$75 million into an escrow account pending the outcome of the appeal.

If Cochlear’s Supreme Court appeal is unsuccessful, the monies in the escrow account will be paid to AMF and AB and the settlement will become final.

However, if Cochlear’s Supreme Court appeal is successful, the monies in the escrow account will be returned to Cochlear and there may be a new trial to redetermine the quantum of damages.

In accordance with accounting standards, a provision for the settlement liability and associated legal expenses will be recognised in Cochlear’s upcoming FY 2020 financial results.

Cochlear is scheduled to release its results on Tuesday morning before holding an analyst call at 10am Eastern time.

More reading

• Why Aurizon, Cochlear, Magellan, & Westpac shares are pushing higher
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• Top brokers name 3 ASX shares to sell today
• 3 top ASX shares that could be quality buy and hold options

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. The Motley Fool Australia has recommended Cochlear Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Arena REIT No 1 (ASX: ARF) share price is up 10.5% since last Monday’s closing bell. Over the same 5 days, the S&P/ASX 300 Index (ASX: XKO) – comprising the 300 largest companies on the ASX – is down 0.5%.

At the current $2.42 per share, Arena has a market cap of $825 million.

Long-term investors have enjoyed solid share price gains and regular dividends since the company listed on the ASX in June 2013. But, like with most companies, that came to an ugly end in February when COVID-19 sent investors rushing for the exits.

From 20 February through 23 March, the Arena REIT share price tumbled 58%. It’s rebounded strongly since then, gaining 71% since that low. But Arena’s share price still remains down 16% year-to-date.

What does Arena REIT do?

Arena is a real estate investment trust (REIT). The trust owns, manages and develops properties across Australia. Its portfolio of social infrastructure properties is primarily leased to early learning and healthcare operators, along with some government-tenanted facilities. The company aims to provide investors with earnings growth prospects over the medium to long-term.

Arena REIT is included in the S&P/ASX 300 Index.

Why is the share price up 10.5% in 5 days?

It hasn’t fully recovered from the market rout in February and March, but Arena REIT’s share price has done better than most property shares.

This is largely due to its focus on long-term leases in the 2 sectors that have, in most cases, continued to operate in Australia despite coronavirus lockdowns. Namely, early learning centres and healthcare providers.

Having said that, in its 2020 financial year results released on Thursday, the company noted the rent relief it had provided to some tenant partners amounted to 4% of contracted rent for the 12-month reporting period.

Arena REIT’s share price has gained strongly over the past few days, following positive results in Thursday’s report.

Those included a 16% increase in net operating profit, which reached $43.8 million.

Total assets also increased, up 23% year-over-year to hit $1.01 billion. This was mostly due to acquisitions, development capital expenditure and a positive revaluation of its portfolio. Additionally, the company has been paying down debt, with its debt to equity ratio standing at 14.8% compared to 22.1% the previous year.

With managing director Rob de Vos forecasting that Arena remains well positioned to deliver “earnings growth prospects over the medium to long term”, the Arena REIT share price may yet close the calendar year in the green.

More reading

• Arena share price jumps on FY20 results
• Earnings: Genworth share price plunges 6% after $90 million half-year loss
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• 3 tips for investing in ASX 200 shares for beginners
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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Starpharma Holdings Limited (ASX: SPL) share price is bucking the market downtrend today after the biotech announced a new partnership deal.

The news isn’t quite as exciting as Mesoblast limited’s (ASX: MSB) FDA announcement, but shareholders will still be happy to see Starpharma rally 1.9% to $1.05 in late afternoon trade.

In contrast, the S&P/ASX 200 Index (Index:^AXJO) slumped 0.6% as ASX bank stocks dragged the market lower.

Why the Starpharma share price is outperforming

But the pessimism isn’t infecting Starpharma. Management said it signed a research partnership to develop several DEP nanoparticle formulations for an anti-infective drug.

DEP is Starpharma’s drug delivery technology and the partnership is with Tianjin Chase Sun Pharmaceutical Co., Ltd.

Chinese partner with deep pockets

Shanghai Stock Exchange-listed Chase Sun will foot the bill for the development program. Starpharma will initially develop its nanoparticle technology for an anti-infective product for the Chinese partner with the view of enhancing its performance and expanding its therapeutic utility beyond anti-infectives.

If Chase Sun wanted to use the technology in any commercial application, it will need to strike a license agreement with the ASX biotech.

The Chinese partner should have deep pockets as it reported annual sales of over $1 billion in 2019 and its current market capitalisation stands at around $3 billion.

Will the Starpharma share price play catchup?

“We are delighted to sign this new DEP partnership with Chase Sun. Chase Sun are a rapidly growing and innovative company in an important global market,” said Starpharma’s chief executive Jackie Fairley.

“This agreement illustrates the broad applicability of the DEP platform and will further develop the commercial potential of DEP in the anti-infective space, a therapeutic area of growing interest and need.”

Investors will be hoping that the news marks a turnaround in Starpharma’s share price. It fell 13% since the start of 2020.

ASX stocks to buy post COVID-19

This is below the 2% gain by the CSL Limited (ASX: CSL) share price. That says a lot given that the blue-chip biotech isn’t much of a star performer during the COVID-19 pandemic.

If you are hunting for stocks to buy in the post COVID world, you might like to download this free report from the experts at the Motley Fool.

Follow the link below to find out more.

More reading

• What experts are saying about JB Hi-Fi’s profit results as the stock surges to record
• Millennials be warned! ASIC to examine irresponsible ‘social trading’
• These 3 ASX stocks just got upgraded by top brokers to “buy” today
• ASX 200 down 0.85%: JB Hi-Fi impresses, Altium shoots higher, Bendigo and Adelaide Bank sinks
• Why Altium, Beach, JB Hi-Fi, & Starpharma shares are charging higher

Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. and Starpharma Holdings Limited. The Motley Fool Australia has recommended Starpharma Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The ASX is littered with small-cap shares all vying to be global leaders in their fields. These innovative start-up companies seek to pursue untapped market opportunities that could one day bring them to stardom like industry giants CSL Limited (ASX: CSL) and Cochlear Limited (ASX: COH).

The key is to identify which ASX small-cap shares have the potential to grow materially in the future and bring investors large returns.

I believe shares within the healthcare sector are a good place to start. People view healthcare as a non-discretionary spend, including in times of economic downturn.

Paradigm Biopharmaceuticals Ltd (ASX: PAR) is one such ASX small-cap share that has a promising outlook ahead. The company is founder-led and is on the cusp of commercialising its patented hero drug.

Below, I put a microscope to Paradigm and explore whether this biopharma share is a buy.

What does Paradigm do?

This late-stage company is focused on repurposing the drug pentosane polysulphate sodium (PPS) for the treatment of musculoskeletal disorders in humans with degenerative disease driven by injury, virus infection, ageing or genetic predisposition.

Paradigm’s leading drug candidate, Zilosul, is used to treat osteoarthrosis (OA), a progressive disease that affects over 240 million globally. The injectable PPS treatment showed its efficacy in patients with OA, resulting in pain reduction, improved joint function, and the prevention of cartilage damaging joints.

Paradigm’s update and addressable market

In September last year, the US Food and Drug Administration (FDA) approved the ‘Expanded Access Program’ whereby Paradigm was able to treat 10 former NFL players who suffer from OA with Zilosul. Trials commenced in February and as of late July, the company revealed that patients reported a 65% mean pain reduction after 12 weeks.

Paradigm confirmed that its primary and secondary Phase III trials are expected to run until late 2022 where results will be announced. However, prior to the completion of these trials, the company will seek provisional approval in Australia with the Therapeutic Goods Administration (TGA).

The potential revenue in the near term is estimated to be $1.5 billion per annum. And should the FDA approve Paradigm’s new drug application following its Phase III results, the addressable market in the US alone is US$9 billion per annum. To put that into perspective, Paradigm’s market cap at the time of writing is $637 million.

Paradigm’s financials

The company released its latest activities statement for the quarter ending 30 June. Paradigm reported a cash on hand balance of $104.6 million, a net operating cash flow of $4.7 million and no debt.

With a strong balance sheet, the biopharma company should be able to fund its operations through 2022 without additional capital raising or loans from creditors.

Should you invest in this ASX small-cap share?

Over the past 12 months, the Paradigm share price has rocketed higher to $2.81, up 102% (at the time of writing).

If the company’s drug Zilosul is approved by both the TGA and FDA to treat sufferers for OA, I believe Paradigm will generate multiple returns for years to come. The potential recurring revenue is enormous should the company penetrate even as little as 10% of the OA market.

In light of this, I would rate Paradigm as a buy for the more risk tolerant investor looking to invest in ASX small-cap shares.

More reading

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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