Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) got crushed with a downgrade from Credit Suisse that led to a 6.3% loss on Monday. The stock is now trading at $7.50, 33% lower than it began the year (at $12). But what many don’t realize is that Spectrum at $7.50 is actually more expensive than it was at $12.00
This Is Not A Cheap Stock
Back in March, Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) lowered guidance. The company said that it’s expecting full-year revenue of $170 million (average), significantly lower than the $300 million it had projected for the full-year prior to March.
Lately, there has been a lot of people claiming that Spectrum is a value investment. They point to the stock’s P/E ratio of 10.5 or its near–$200 million in cash and believe it is a good investment. However, these people are not quite adding the company’s guidance into their assessment.
Back when Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) was at $12, the company was being valued after producing $94.55 million in net income during 2012. Now, after updated guidance, most anticipate an annual loss, much like what we saw during its most recent quarter.
As a result, the pure price of Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) might be a bit misleading, as it’s actually more expensive today versus in January. To paint a clearer picture, let’s compare the two periods: one being its price and guidance in January and the other being the stock as it trades today.
|Market Capitalization||$710 million||$450 million|
|Full-Year Revenue Guidance||$300 million||$170 million|
|Price/ Sales Guidance||2.36||2.64|
|Forward P/E Ratio||14.26||47.12|
The chart above should be very telling: it shows that while Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) is actually cheaper today in stock price, it is not presenting more value. In January, the stock was being valued based on past earnings and future expectations, as most analysts projected net income over $50 million for this upcoming year.
Today, analysts expect net income of under $10 million, and to many this is still too favorable. Moreover, using guidance as a measure, the stock actually traded at a cheaper market capitalization times guidance in January than it does today. Combined, this all proves that at $12, in January, Spectrum Pharmaceuticals was cheaper than it is today.
Don’t Be Tricked
Looking at Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI), I don’t see a great deal of value in its stock. Furthermore, there are a lot of questions surrounding its future, due to sales of Fusilev still lagging. Therefore, I would not invest in Spectrum Pharmaceuticals at this time.