Perilous Reversal Stock: Epizyme (EPZM)

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.

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

  • EPZM has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $19.7 million.
  • EPZM has traded 70,192 shares today.
  • EPZM is down 3.8% today.
  • EPZM was up 25.2% yesterday.

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More details on EPZM:

Epizyme, Inc., a clinical stage biopharmaceutical company, discovers and develops epigenetic therapies for cancer patients. Its proprietary product platform creates small molecule inhibitors of a 96-member class of enzymes known as histone methyltransferases (HMTs). Currently there are 5 analysts that rate Epizyme a buy, no analysts rate it a sell, and none rate it a hold.

The average volume for Epizyme has been 340,700 shares per day over the past 30 days. Epizyme has a market cap of $855.0 million and is part of the health care sector and drugs industry. The stock has a beta of 1.25 and a short float of 38.4% with 4.93 days to cover. Shares are up 10% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Epizyme as a sell. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • EPIZYME INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, EPIZYME INC reported poor results of -$1.64 versus -$0.17 in the prior year. For the next year, the market is expecting a contraction of 137.8% in earnings (-$3.90 versus -$1.64).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Biotechnology industry. The net income has significantly decreased by 790.8% when compared to the same quarter one year ago, falling from -$6.88 million to -$61.33 million.
  • 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 Biotechnology industry and the overall market, EPIZYME INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to -$22.71 million or 291.25% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • The share price of EPIZYME INC has not done very well: it is down 24.64% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.

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