Has Savient Pharmaceuticals Become the Perfect Stock?

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if Savient Pharmaceuticals (Nasdaq: SVNT  ) fits the bill.

The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at Savient Pharmaceuticals.

Factor

What We Want to See

Actual

Pass or Fail?

Growth

5-Year Annual Revenue Growth > 15%

(15.6%)

Fail

 

1-Year Revenue Growth > 12%

176.7%

Pass

Margins

Gross Margin > 35%

(13%)

Fail

 

Net Margin > 15%

NM

NM

Balance Sheet

Debt to Equity < 50%

NM

NM

 

Current Ratio > 1.3

5.29

Pass

Opportunities

Return on Equity > 15%

NM

NM

Valuation

Normalized P/E < 20

NM

NM

Dividends

Current Yield > 2%

0%

Fail

 

5-Year Dividend Growth > 10%

0%

Fail

       
 

Total Score

 

2 out of 6

Source: S&P Capital IQ. NM = not meaningful due to negative shareholder equity and negative earnings that substantially exceed total revenue. Total score = number of passes.

Since we looked at Savient Pharmaceuticals last year, the company hasn't been able to gain back the point it dropped from 2010 to 2011. The stock has been on a roller-coaster ride, falling 50% over the past year but with big swings that took it over a much wider range.

Unfortunately for investors, Savient has been a poster child for why gaining FDA approval for a drug isn't necessarily a ticket to success. Just as Dendreon (Nasdaq: DNDN  ) hasn't had sales of its Provenge cancer treatment ramp up nearly as quickly as investors had hoped, Savient has struggled with its Krystexxa gout treatment. Interestingly, Savient's former CEO John Johnson actually moved to take over Dendreon earlier this year, leaving many wondering whether Johnson saw something he didn't like at Savient.

Things got so bad that in early May, creditor Tang Capital Partners asked to put Savient into receivership. But a court rejected Tang's argument, which allowed Savient to raise more capital to extend the maturity of some of its debt.

In August, the stock doubled, and it proceeded to double again in early September before falling back substantially since then. The problem, though, is that Krystexxa sales don't seem likely to move powerfully higher. Moreover, unlike Human Genome Sciences -- which arguably got rescued when partner GlaxoSmithKline (NYSE: GSK  ) bought it out despite the slow rollout of HGS' lupus drug -- Savient doesn't have a partner to be an obvious buyer. Speculation that Pfizer (NYSE: PFE  ) or Abbott Labs (NYSE: ABT  ) might buy the company proved not to come to pass last year, and there's little reason to expect them to call now.

For Savient to improve, it needs its recent positive opinion from Europe's Committee for Medicinal Products for Human Use for Krystexxa to act as a catalyst to boost sales. Without that, Savient is unlikely to move toward perfection in the near future.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.

Like Savient, Dendreon has had trouble getting its revolutionary prostate cancer vaccine Provenge off the ground. But does that mean you shouldn't invest in the struggling biotech stock, or is Dendreon a buy right now? Our own David Williamson answers this question, and many more, inside our brand new premium research report on Dendreon. Inside, he details every key issue facing the company and outlines just how Dendreon intends to regain its former glory. The report also comes with a full year of analyst updates, so claim your copy of this exclusive report today by clicking here now.

Click here to add Savient Pharmaceuticals to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2101932, ~/Articles/ArticleHandler.aspx, 11/28/2014 12:09:20 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement