When I look for my morning pick, I generally look for prices that have depreciated for the wrong reasons, at or near their support levels, and are potentially signalling a bearish reversal. Then I look at their financials and ask several questions such as Why do we buy their product and service?, Will we buy more?, How much money will they make?, Are their assets predominantly cash?; and, Are they carrying a lot of debt? Then I look at the macro issues: Is the Market, Sector, and/or Industry retreating or advancing and why?
Not many companies will answer ALL these questions correctly so, I need some flexibility. Rarely do I find a perfect diamond.
On that note, my morning pick is 3SBio Pharmaceutical (SSRX).
How does this company make money?
If you visit their investor relations you would immediately notice that they are probably over-bullish about their company so I am going to give a more objective view. They got several drugs which have been approved by China's State and Food Drug Administration. Their main product appears to be EPIAO® (about 50% of sales). This drug helps people with kidney failure (caused mostly by diabetes and high blood pressure) to produce the hormone Erythropoietin which is released by the kidneys then travels to your bone marrow and stimulates the production of red blood cells (RBC). If you don't have RBC's you get pretty tired called anemia because RBC's carry iron in your blood and iron is what binds the oxygen you inhale in your lungs. So patients with severe kidney disease such as end-renal kidney disease are at risk for anemia. The difficulty is that the market for end-renal kidney disease is much, much smaller than chronic kidney disease. For example, in the U.S. there are approximately 20 million with chronic kidney disease while there are only 500,000 with end-renal disease. Now, extrapolate that to China. If physicians begin to prescribe EPIAO for off label use then EPIAO's sales would increase significantly. I could see indications for chronic kidney disease particularly if the disease impacts erythropoietin production. But as far as that, EPIAO is limited. Approval outside China would definitely spike sales. Their other main product is TPIAO® (about 30% of sales), suitable for thrombocytopenia (low platelets that reduces your ability to clot) associated with chemotherapy in cancer patients with solid tumors. Unfortunately, the market for thrombocytopenia caused by cancer is not particularly robust because thrombocytopenia is usually temporary, according to Cancer.net.
Overall, they do have a some healthy financial figures. Their sales in 2010 were $61 million, up significantly from $16 million in 2006. They may come in $20 million higher for fiscal 2011. They earned about 55 cents per share in 2010 and 22 cents per share is estimated for their third quarter for 2011 to be reported on 11/16/2011. While EPS have not kept up with sales, its because their R&D costs and their marketing expenses have increased. Their current P/E ratio is 20.60 and they have not yet paid any dividends. Most of their assets ($180 million) is predominantly cash and short-term investments ($88 million). They have no long-term debt and current liabilities is negligible at $7.2 million.
Visit Investor Relations
Technical Analysis. S3Bio's price reached a high of around $20 in March of 2011 but has since retraced to around $10.51. Its currently trading well below its 50-day moving average of $13.02 and 200 day of $15.76. What I like about SSRX's chart is that the price is near its 2 year support of around $10. And as they say, you should buy near or at the support level and then go with the upward trend. SSRX's relative strength index is currently 30.04 indicating that it is oversold but it could go lower during the next few trading days, and if so, then I would expect a trend reversal. Now could be a good entry point if the price opens higher tomorrow than last Friday's close. Or if the price continues to retrace then wait for a bottom. Another entry position would be around $13.10 but then would forgo some profit. They only have about 22 million share outstanding so this stock could pop anytime as upward pressure mounts. Biotechnology was one of the only Industries that increased yesterday and its one of the best performing Industries in the Healthcare Sector during the past 2 months.
| VIEW TODAY'S POSTS | Join the conversation @Twitter and Facebook |
0 Comment on Post:
Post a Comment