I'm a believer in growth stocks. As an analyst for our Motley Fool Rule Breakers service, I think you should be a believer, too. But even I have to admit some growth stories are bogus, hence this regular series.
Next up: Savient Pharmaceuticals
Foolish facts
|
Metric |
Savient Pharmaceuticals |
|---|---|
| Motley Fool CAPS stars (out of 5) | *** |
| Total ratings | 456 |
| Percent bulls | 91.9% |
| Percent bears | 8.1% |
| Bullish pitches | 60 out of 65 |
| Highest-rated peers | Trubion Pharmaceuticals, Codexis, Neostem |
Data current as of Nov. 16.
Big money investors are as undecided about Savient as are Fools. They've good reason to be skittish. Shares of Savient are down almost 50% over the past month. The S&P 500 is up slightly over the same period.
Part of the problem, apparently, is that investors see Savient as a special situation. One of the big pharma companies was supposed to make a bid for the company at a nice premium. No buyer has been found, nor is there any indication there will be one.
What this means is that, barring an unexpected bid, Savient could be on its own to market and distribute its gout treatment, Krystexxa. Not exactly the outcome you hope for when you're managing a biotech that hasn't produced a dime of free cash flow on an annual basis since 2005. Yet at least one Fool remains hopeful.
"Slammed almost 50% because it couldn't find a buyer at it's already run-up speculated price. Remember it still has a fresh FDA approval of Krystexxa for arthritis, so the risk/reward at this point is very appealing. Potential for a quick pop from another (albeit lower) buyout price, or it can ride the Krystexxa sales for a while," All-Star investor darthballs wrote in pitching the stock in CAPS last month.
The elements of growth
|
Metric |
Past 12 Months |
2009 |
2008 |
|---|---|---|---|
| Normalized net income growth | Not measurable | Not measurable | Not measurable |
| Revenue growth | 23.1% | (6.9%) | (77.3%) |
| Gross margin | 65.2% | 45.7% | 63.7% |
| Receivables growth | 1% | (57.2%) | (44.8%) |
| Shares outstanding | 67.3 million | 66.9 million | 54.6 million |
Source: Capital IQ, a division of Standard & Poor's.
Indeed, there's good news in this table for speculative value investors such as darthballs. Let's review:
- Management is also getting more efficient. Receivables are up just 1% versus a 23% boost in sales. The result? Savient is reporting lower operating losses and burning through less cash.
- In fact, it's careful cash management that's likely responsible for Savient not needing to issue millions more in shares outstanding. But this may not continue. With no cash-rich parent to share marketing and distribution costs, Savient could be forced to either issue new shares or part with some of the $78 million in cash on its balance sheet.
Competitor and peer checkup
|
Company |
Normalized Net Income Growth (3 years) |
|---|---|
|
Lannett |
Not measurable |
|
Novartis |
16.1% |
|
Par Pharmaceutical |
29% |
| Savient Pharmaceuticals | Not measurable |
Source: Capital IQ. Data current as of Nov. 16.
We can't draw any conclusions about Savient from this table. All it tells us is that Par Pharmaceuticals is the best growth story here. If only analysts were more optimistic about Par; they're calling for its earnings to decline 1% annually for the foreseeable future.
Grade: Unsustainable
Wall Street has yet to pin a long-term earnings target on Savient's backside. That's not necessarily troublesome, but it's also one less reason to believe in this growth story. No suitors, no soothsayers, and no free cash flow. That's a terrible triumvirate, one I'd rather do without.
Now it's your turn to weigh in. Do you like Savient Pharmaceuticals at these levels? Let us know what you think using the comments box below. You can also ask Tim to evaluate a favorite growth story by sending him an email or replying to him on Twitter.
Interested in more info on Savient Pharmaceuticals? Add it to your watchlist by clicking here.
