Many believed that Q1 earnings would be the start of a larger trend higher that reversed the losses seen in shares of Questcor Pharmaceuticals, Inc. (NASDAQ:QCOR) over the last year, but were those people ever wrong.
Questcor Pharmaceuticals, Inc. (NASDAQ:QCOR) is trading with losses of 9% immediately following its Q1 earnings report. For the quarter, Questcor grew 41% and posted revenue of $135 million and an EPS of $0.76. The problem is that both numbers were far below the consensus, as revenue missed by $22 million and EPS was short by $0.20.
According to the company, earnings were negatively impacted by several transitional events, including: distribution channel disruptions due to the Medicaid rebate change; the timing of Acthar orders that were received and filled; and the introduction of a new reimbursement support center. The company also saw a reduction in the number of Acthar prescriptions to treat MS exacerbations.
There are some cases when 41% growth is considered “bad” but it’s not often that this occurs when a biotechnology stock is trading at 9.5 times earnings, with a price/sales of 3.35, and pays an annual yield of 3.25%. In fact, this never happens. Yet Questcor Pharmaceuticals, Inc. (NASDAQ:QCOR), because of its past growth, has very high expectations. In theory, if a stock drops 40% in less than a year then its expectations are also expected to fall, but not for Questcor — it continues to trade dirt cheap while those in the analyst community expect growth of 60%.
For those of you who are unfamiliar with Questcor Pharmaceuticals, Inc. (NASDAQ:QCOR), it is a stock that has fallen drastically due to an investigation into its “practices” and insurance restrictions on its only marketable drug, Acthar. The company has done virtually everything possible to regain sentiment including dividends and buybacks, yet has remained unsuccessful. And while many can somehow rationalize that Questcor Pharmaceuticals, Inc. (NASDAQ:QCOR) is a bad stock or that somehow it trades at a fair value price, I can’t help but to look at the earnings report, ignore the expectations, and see an undervalued stock.
Example of Value
In biotechnology, revenue is not created equally, which means that the market places larger valuations on the revenue and growth of certain companies over others. This can be for various reasons, including Orphan statuses, pipelines, or peak sales potential. However, as I look at Questor’s quarter, I can’t help but to think of Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) .