Too Late for Short Mallinckrodt (MNK) Position
NEW YORK (TheStreet) -- Seeing reports that Citron Research put out a bearish tweet on Mallinckrodt PLC (MNK) - Get Report , I decided to look at the chart.
MNK, chart above, has already had a significant decline to around $60 from around $130. The On-Balance-Volume line (OBV) is neutral and prices are fairly oversold, so this is not the best timing and location for a short sale. Prices are not bottoming, but it is certainly late in the game to position MNK from the short side.
TheStreet Ratings team rates MALLINCKRODT PLC as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:
We rate MALLINCKRODT PLC (MNK) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, increase in net income and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, a generally disappointing performance in the stock itself and generally higher debt management risk.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth greatly exceeded the industry average of 7.1%. Since the same quarter one year prior, revenues rose by 47.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Pharmaceuticals industry. The net income increased by 340.7% when compared to the same quarter one year prior, rising from -$24.10 million to $58.00 million.
- MALLINCKRODT PLC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, MALLINCKRODT PLC swung to a loss, reporting -$3.57 versus $0.06 in the prior year. This year, the market expects an improvement in earnings ($7.31 versus -$3.57).
- The debt-to-equity ratio of 1.01 is relatively high when compared with the industry average, suggesting a need for better debt level management. Even though the debt-to-equity ratio is weak, MNK's quick ratio is somewhat strong at 1.12, demonstrating the ability to handle short-term liquidity needs.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Pharmaceuticals industry and the overall market, MALLINCKRODT PLC's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: MNK
Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.