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.
