Keros Therapeutics (NASDAQ:KROS) generates almost no meaningful revenues and has zero FDA-approved treatments. But I still think the stock looks like incredible value right now.
As a rule, I don’t invest in the pharmaceutical industry – especially speculative drug projects. But every rule has exceptions and I’m seriously considering making one here.
What’s going on here?
Bear with me here, readers. This might sound like the kind of raging speculation that was prevalent during the dotcom bubble, but I think there’s actually genuine value here.
Let’s start with a trip through the firm’s back story. Keros had been working on a drug called elritercept, intended to treat conditions arising from low blood cell counts – such as anemia.
Between 2022 and 2024, the drug generated positive results in Phase 2 trials. And this was enough for Japanese pharmaceutical company Takeda to take an interest.
In January 2025, Takeda agreed an exclusive deal to develop, manufacture, and market the drug. And the contract has a potential total value of more than $1.1bn if things go well.
That’s almost double Keros’s current market value, but this isn’t why I think the stock is good value. The drug still has to get through Phase 3 trials, so there’s still a lot of uncertainty.
The reason I think Keros shares are incredible value isn’t the cash it might get from its deal with Takeda. It’s the cash it already has on its balance sheet.
Cash in hand
At the start of 2025, Keros had just under $560m in cash. And in January, it received $200m from Takeda as the first part of the deal, taking its cash pile to just under $760m.
Even with $20m in debt, the company still has net cash of around $740m – or $18 per share. But the stock is currently trading 22% below this, at around $14.
At today’s prices, I think this means there’s a big margin of safety. Even if the firm doesn’t make more money from its elritercept deal, it still looks clearly undervalued.
There’s a big risk that it’s important to think about seriously. Realising that value depends on Keros deciding to return that cash to shareholders, which isn’t guaranteed.
If Keros decides to reinvest its cash into another future drug, then things look very different. In that case, everything hangs on how the drug does in trials, which I’m not comfortable with.
In April though, the firm’s board announced a strategic review. And a return of capital – which I know at least some investors have been asking for – is a live possibility.
Old-fashioned value investing
Back in the day, Warren Buffett started investing by looking for companies whose shares were trading for less than their net cash. And the Oracle of Omaha says that’s what he’d do again.
Stocks like that aren’t so easy to find these days, but Keros Therapeutics is one. I don’t think it takes specialist knowledge of drug development to see why this could be undervalued.
The results of the strategic review are due by 10 June. So while I’m making sure I look into this one carefully, the opportunity isn’t likely to be around indefinitely.
