Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Sagent Pharmaceuticals (NASDAQ:SGNT), a specialty biopharmaceutical company focused on developing injectable generic products, soared as much as 12% after the company reported better-than-expected first-quarter results before the opening bell.
So what: For the quarter, Sagent delivered an 18% increase in revenue to a record $70.9 million driven by both organic and new product growth. As the press release notes, Sagent introduced 10 new products and benefited from market shortages on a number of key generic drugs. Higher cost of sales, however, pushed gross profit lower as a percentage of revenue and produced an EPS profit of $0.16, down 53% on an adjusted basis from the prior year. Comparatively, this still crushed the breakeven results that the Street had expected, as well as the $65.7 million in revenue it was looking for. Looking ahead, Sagent reaffirmed its full-year guidance of $250 million-$290 million in revenue with net income in the range of $10 million in profits to $10 million in losses, or ($0.31) to $0.31 in EPS.
Now what: I do happen to have a soft spot for Sagent in that I've come to appreciate its role in niche generic production. What I can do without are the wild swings come earnings time. This actually marks the fifth consecutive quarter that the company has absolutely crushed estimates; which is good, don't get me wrong. But it also demonstrates that Sagent either isn't providing conveying useful operations guidance to investors, or it doesn't really have a good bead on its short-term demand outlook. Either way, it's something to think about as you attempt to value Sagent.
As for me, while I can foresee Sagent meeting or exceeding its double-digit growth estimates for 2014 and 2015, its forward P/E of 32 is a bit difficult to wrap my hands around given its falling margins. In other words, it's an intriguing company, but likely nothing more than a watchlist add at the moment.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.