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Perilous Reversal Stock: DepoMed (DEPO)

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

  • DEPO has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $14.3 million.
  • DEPO has traded 92,423 shares today.
  • DEPO is down 3.6% today.
  • DEPO was up 13.5% yesterday.

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More details on DEPO:

Depomed, Inc., a specialty pharmaceutical company, develops products for pain and other conditions, and diseases of the central nervous system in the United States. DEPO has a PE ratio of 9.2. Currently there is 1 analyst that rates DepoMed a buy, no analysts rate it a sell, and 1 rates it a hold.

The average volume for DepoMed has been 1.2 million shares per day over the past 30 days. DepoMed has a market cap of $610.8 million and is part of the health care sector and drugs industry. The stock has a beta of 0.85 and a short float of 7.6% with 3.54 days to cover. Shares are up 13.4% year-to-date as of the close of trading on Monday.

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 DepoMed as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity. However, as a counter to these strengths, we find that the growth in the company's earnings per share has not been good.

Highlights from the ratings report include:

  • DEPO's very impressive revenue growth greatly exceeded the industry average of 5.2%. Since the same quarter one year prior, revenues leaped by 192.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • DEPO has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign.
  • The gross profit margin for DEPOMED INC is currently very high, coming in at 91.85%. Regardless of DEPO's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, DEPO's net profit margin of 23.43% compares favorably to the industry average.
  • DEPOMED INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, DEPOMED INC turned its bottom line around by earning $0.74 versus -$0.54 in the prior year. For the next year, the market is expecting a contraction of 58.1% in earnings ($0.31 versus $0.74).

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