I much prefer a company such as Regeneron Pharmaceuticals Inc (NASDAQ:REGN), an Orphan company with many years of exclusivity for its best-selling drug EYLEA. For Spectrum Pharmaceuticals investors, this should be especially important, considering it was generic introductions that led to Spectrum’s decline.
Regeneron Pharmaceuticals Inc (NASDAQ:REGN) trades at 13 times its last 12 month’s sales. This is far greater than what we see with Spectrum Pharmaceuticals. But like I explained, expectations and growth must be considered.
Regeneron Pharmaceuticals Inc (NASDAQ:REGN) is a company with top-line growth of 80% that has a large pipeline of several blockbuster products. Therefore, the market gives companies with greater growth and more upside higher valuations compared to their fundamentals.
Indirectly, this further adds to the bearish outlook for Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI)’ stock. Today, it trades at a greater price to guidance ratio than it did in January. Yet, in January the company was projecting growth and higher profitability. To me, the logic of Spectrum being cheap doesn’t make sense, and this information is proof that price is what dictates this opinion.
For those who are considering an investment in Spectrum — because you believe it is cheap — you might want to look at the bigger picture. Spectrum Pharmaceuticals is a company that is posting year-over-year revenue losses, is borderline profitable, and has an unstable future due to new generics. Therefore, how and why would it trade at a greater premium to guidance versus times in the past when the company was actually growing? It doesn’t make sense, and this leads me to believe that more downside could occur, and that any notions of value could be a trap.
The article Is This Stock A Value Trap? originally appeared on Fool.com and is written by Sherrie Stone.
Sherrie Stone has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Sherrie is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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