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Perilous Reversal Watch: 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 $12.8 million.
  • AVNR has traded 292,709 shares today.
  • AVNR is down 3.6% today.
  • AVNR was up 45.6% yesterday.

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More details on AVNR:

Avanir Pharmaceuticals, Inc., together with its subsidiaries, is engaged 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 2.2 million shares per day over the past 30 days. AVANIR has a market cap of $484.3 million and is part of the health care sector and drugs industry. The stock has a beta of 1.08 and a short float of 12.1% with 5.66 days to cover. Shares are up 1.8% year-to-date as of the close of trading on Tuesday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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 disappointing return on equity and generally high debt management risk.

Highlights from the ratings report include:

  • 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.
  • The debt-to-equity ratio is very high at 3.29 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Regardless of the company's weak debt-to-equity ratio, AVNR has managed to keep a strong quick ratio of 1.67, which demonstrates the ability to cover short-term cash needs.
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Pharmaceuticals industry. The net income increased by 9.3% when compared to the same quarter one year prior, going from -$12.08 million to -$10.95 million.
  • The gross profit margin for AVANIR PHARMACEUTICALS INC is currently very high, coming in at 96.00%. 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 -40.92% significantly underperformed when compared to the industry average.
  • The stock price has risen over the past year, but it has underperformed the S&P 500 so far. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.

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