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Perilous Reversal Stock: AVANIR Pharmaceuticals (AVNR)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified AVANIR Pharmaceuticals ( AVNR) as a "perilous reversal" (up big yesterday but down big today) candidate. In addition to specific proprietary factors, Trade-Ideas identified AVANIR Pharmaceuticals as such a stock due to the following factors:

  • AVNR has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $20.1 million.
  • AVNR has traded 1.5 million shares today.
  • AVNR is down 3.6% today.
  • AVNR was up 19.7% yesterday.

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More details on AVNR:

Avanir Pharmaceuticals, Inc., together with its subsidiaries, engages in acquiring, developing, and commercializing novel therapeutic products for the treatment of central nervous system disorders primarily in the United States. Currently there are 3 analysts that rate AVANIR Pharmaceuticals a buy, no analysts rate it a sell, and 2 rate it a hold.

The average volume for AVANIR Pharmaceuticals has been 2.5 million shares per day over the past 30 days. AVANIR has a market cap of $436.5 million and is part of the health care sector and drugs industry. The stock has a beta of 1.05 and a short float of 17.7% with 2.89 days to cover. Shares are up 9.7% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates AVANIR Pharmaceuticals as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, generally high debt management risk and feeble growth in its earnings per share.

Highlights from the ratings report include:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Pharmaceuticals industry. The net income has significantly decreased by 202.3% when compared to the same quarter one year ago, falling from -$11.73 million to -$35.45 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Pharmaceuticals industry and the overall market, AVANIR PHARMACEUTICALS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Currently the debt-to-equity ratio of 1.59 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Regardless of the company's weak debt-to-equity ratio, AVNR has managed to keep a strong quick ratio of 1.98, which demonstrates the ability to cover short-term cash needs.
  • AVANIR PHARMACEUTICALS INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, AVANIR PHARMACEUTICALS INC reported poor results of -$0.53 versus -$0.45 in the prior year. This year, the market expects an improvement in earnings (-$0.28 versus -$0.53).
  • The gross profit margin for AVANIR PHARMACEUTICALS INC is currently very high, coming in at 94.36%. Regardless of AVNR's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, AVNR's net profit margin of -163.71% significantly underperformed when compared to the industry average.

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