Why Star Scientific Has Soared in 2012

As we approach the halfway point for 2012, now's a good time to look back at what's happening with the stocks that interest you. By making sure you know the important things that a company accomplished -- as well as the setbacks it experienced -- you can make a better decision about whether it's a smart investment for your portfolio.

Today, let's take a look at Star Scientific (Nasdaq: CIGX  ) . The company is best known for its tobacco-related business, including a curing process that promises to reduce the harmful effects of tobacco and some smokeless tobacco products. But Star Scientific also offers the dietary supplements CigRx and Anatabloc, which have seen revenue soar recently. Let's take a quick look at how Star Scientific is doing so far this year.

Stats on Star Scientific

2012 YTD Return 122.9%
Market Cap $708 million
Total Revenue, Most Recent Quarter $1,167,000
Year-Over-Year Revenue Growth, Most Recent Quarter 663%
Net Loss, Most Recent Quarter ($5,171,000)
CAPS Rating (out of 5) *

Source: S&P Capital IQ.

Why is Star Scientific's stock up so much?
Historically, many analysts pinned their hopes for Star Scientific on its ability to provide an alternative to traditional cigarettes. Given the huge profits that Altria (NYSE: MO  ) , Lorillard (NYSE: LO  ) , and Reynolds American (NYSE: RAI  ) have earned by tapping the demand for smoking, Star Scientific bulls believed that the company could compete with those giants, sapping their sales and giving the stock almost limitless upside.

But although Star Scientific still sells some tobacco products, it no longer resembles a true tobacco company. Sales of subsidiary Rock Creek Pharmaceuticals' dietary supplements have shot through the roof in recent quarters and are solely responsible for the revenue growth that Star Scientific has seen. With CigRx designed to decrease the desire to smoke and Anatabloc billed as a supplement for anti-inflammatory support, customers have latched on to the new direction Star Scientific is moving in.

Star Scientific has made some big strides so far in 2012. It named golfer Fred Couples as what it calls its Brand Ambassador for Anatabloc, and more important, the company developed a retail relationship with GNC Holdings (NYSE: GNC  ) to sell Anatabloc at GNC stores.

But Star Scientific still has plenty of work to do. Bears point to massive share issuance and ongoing losses for the company. In order to justify its massive valuation at roughly 250 times trailing annual revenue, the company will have to deliver on the full promise of its dietary supplements with huge growth continuing well into the future. Anything short of that will likely leave investors disappointed.

Star Scientific is a speculative play with plenty of risk as well as potential reward. If you'd prefer some other stock ideas with longer track records of success, let me invite you to learn about three smart long-term stock plays in the Fool's latest special report. It's yours for the taking and is absolutely free, but don't miss out -- click here and read it today.

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

Fool contributor Dan Caplinger doesn't own shares of the companies 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 Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (9)

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.

  • Report this Comment On June 21, 2012, at 4:14 PM, antislapp1 wrote:

    CIGX has crashed, and soared due to it being one of the most hyped stocks ever traded. It will crash again as those who received the additional shares and options eventually sell.

  • Report this Comment On June 22, 2012, at 11:12 AM, laffingmcgiraffe wrote:

    What do you all think of CIGX’s anti-inflammatory competition – Chromadex? Someone was telling me that Chromadex’s anti-inflammatory solution doesn’t have side effects and that it is only a matter of time before people start switching to Chromadex?

Add your comment.

DocumentId: 1919811, ~/Articles/ArticleHandler.aspx, 4/17/2014 12:13:32 AM

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