Akorn: the Pharmaceutical Stock You Can’t Afford to Ignore

NEW YORK (TheStreet) -- A San Diego-based biopharmaceutical company is gaining international attention for an experimental Ebola treatment that just saved two lives.

Mapp Biopharmaceutical is that company. Although it might sound like it employs hundreds, it actually employs only nine.

It shipped three vials containing an experimental Ebola drug to two American aid workers in Liberia. It was a last-ditch effort to save their lives while their families were making funeral arrangements back in the U.S. Fortunately, those funerals were canceled.

I know what you may be thinking: What’s the ticker symbol for Mapp Biopharmaceutical? Well, unfortunately Mapp Biopharmaceuticals is not a publicly traded company; it is privately held.

But let’s hear it for the biotech and pharma stocks. These past two to three years have brought some amazing advances in the field of drug discovery and therapeutic medicine.

Drug stocks continue to be one of the best areas in the market. One name that I continue to own in my Aggressive Growth Account is Akorn (AKRX). And this company is actually public, though you may not know much about it.

Akorn, based in Lake Forest, Ill., is a niche generic pharmaceutical company that develops and markets pharmaceuticals in the areas of ophthalmology, hospital drugs and injectables. Stocks like this have been big winners in the past six months. Akorn in particular ranks as a Gunderson Trophy Winner, making it rare and mighty. I have only 10 Trophy Winner stocks in my 3,850 stock universe.

Let’s examine what makes Akorn a Trophy Winner at Gunderson Capital Management:

Data from Best Stocks Now App

Akorn has a market cap of $3.6 billion. Back in 2010, Akorn traded at $1 per share. Today the stock is at $37 per share. While Akorn may not be a mighty oak quite yet, it is well on its way.

Data from Best Stocks Now App

Over the last 10 years, Akorn’s average return has been 30.7%, vs. only 6% for the S&P 500. Over the last five years, it is up at 87% per year while the market returned 14%. These are fantastic returns. Someone send Akorn a Gunderson Capital Management trophy! Over the last three years, it has returned 67% while the market returned 17%.

Over the last 12 months, it is up another 117%. Akorn Inc. gets an A+ for performance. It has great long-term and short-term performance numbers. But I don’t just look at the performance; I also look at valuation.

There seems to be a civil war between momentum investors and value investors, when really the two should be allies. I think both perspectives are important, so I use both to grade stocks.

Data from Best Stocks Now App

Akorn just reported and beat earnings this week, and the stock is breaking out to new all-time highs. On Aug. 5, the company reported solid results of 5 cents above estimates, beat on revenues, and raised both earnings and revenue guidance. The company also reportedly won U.S. antitrust approval to buy specialty prescription drug company VersaPharm.

It is trading at 27 times forward earnings, and growing at 28% per year, giving it a price-to-earnings-to-growth ratio of 0.98. When I estimate next year’s earnings of $1.31, I have a target price of $65 per share.

So Akorn wasn’t the company that spared two souls from Ebola, but it is of the same mold. Pharma stocks are on fire. Akorn has been in the top 100 on my Best Stocks Now app for a long time, and is likely to remain there. This acorn is becoming mightier every day.

At the time of publication, the author was long AKRX, although positions may change at any time.

Follow @billgunderson

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.


Now let's look at TheStreet Ratings' take on this stock.

TheStreet Ratings team rates AKORN INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate AKORN INC (AKRX) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance and expanding profit margins. We feel these strengths outweigh the fact that the company has had subpar growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • AKRX's very impressive revenue growth greatly exceeded the industry average of 4.7%. Since the same quarter one year prior, revenues leaped by 95.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Compared to its closing price of one year ago, AKRX's share price has jumped by 144.09%, exceeding the performance of the broader market during that same time frame. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
  • AKORN INC's earnings per share declined by 27.3% 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, AKORN INC increased its bottom line by earning $0.46 versus $0.32 in the prior year. This year, the market expects an improvement in earnings ($0.85 versus $0.46).
  • The gross profit margin for AKORN INC is rather high; currently it is at 53.24%. Regardless of AKRX's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, AKRX's net profit margin of 5.64% is significantly lower than the industry average.
  • The debt-to-equity ratio is very high at 2.40 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, AKRX has managed to keep a strong quick ratio of 2.31, which demonstrates the ability to cover short-term cash needs.

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