NEW YORK (TheStreet) -- It's not a household name with ads on television for its latest potential blockbuster drug, but Achillion Pharmaceuticals(ACHN) - Get Report turned to the upside last month and looks attractive now from the long side.
In this first chart of ACHN, above, we can see a price improvement with the On-Balance-Volume (OBV) line turning up since early September -- a tell of accumulation. Prices have rallied above the 50-day simple moving average and the 200-day moving average. Also, the slope of the 50-day average is now positive. We can also see a bullish divergence in the August/September/October timeframe with weaker prices but rising momentum readings in the lower panel of the chart.
In this longer-term view of ACHN, above, we can see the recent gains to clear the 40-week moving average. The big rally in 2014 to become a "teenager" and the big correction this year gives us some perspective. With the Moving Average Convergence Divergence (MACD) oscillator moving to the zero line and a buy signal, we like the long side of ACHN.
Traders could go long ACHN right around $10 and use a stop close only order just below $9 as a risk point. Our upside price objective is $14.
TheStreet Ratings team rates ACHILLION PHARMACEUTICALS as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:
We rate ACHILLION PHARMACEUTICALS (ACHN) 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 largely solid financial position with reasonable debt levels by most measures, compelling growth in net income and expanding profit margins. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Biotechnology industry. The net income increased by 267.6% when compared to the same quarter one year prior, rising from -$15.67 million to $26.26 million.
- ACHN's debt-to-equity ratio is very low at 0.00 and is currently below that of the industry average, implying that there has been very successful management of debt levels.
- ACHILLION PHARMACEUTICALS 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, ACHILLION PHARMACEUTICALS reported poor results of -$0.70 versus -$0.63 in the prior year. This year, the market expects an improvement in earnings (-$0.15 versus -$0.70).
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Biotechnology industry and the overall market, ACHILLION PHARMACEUTICALS's return on equity significantly trails that of both the industry average and the S&P 500.
- ACHN's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 33.68%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- You can view the full analysis from the report here: ACHN
Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.