Stock To Watch: Cempra (CEMP) In Perilous Reversal

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

  • CEMP has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $32.7 million.
  • CEMP has traded 204,188 shares today.
  • CEMP is down 3.4% today.
  • CEMP was up 5.7% yesterday.

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More details on CEMP:

Cempra, Inc., a clinical-stage pharmaceutical company, focuses on developing antibiotics to meet medical needs in the treatment of bacterial infectious diseases in North America. Currently there are 9 analysts that rate Cempra a buy, no analysts rate it a sell, and none rate it a hold.

The average volume for Cempra has been 856,300 shares per day over the past 30 days. Cempra has a market cap of $1.6 billion and is part of the health care sector and drugs industry. The stock has a beta of 1.07 and a short float of 8.1% with 3.04 days to cover. Shares are up 63.9% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Cempra as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income and weak operating cash flow.

Highlights from the ratings report include:
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed compared to the Pharmaceuticals industry average, but is greater than that of the S&P 500. The net income has decreased by 2.3% when compared to the same quarter one year ago, dropping from -$17.02 million to -$17.42 million.
  • Net operating cash flow has significantly decreased to -$29.33 million or 73.58% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • 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 Pharmaceuticals industry and the overall market, CEMPRA INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • CEMPRA INC has improved earnings per share by 19.6% 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, CEMPRA INC reported poor results of -$1.80 versus -$1.50 in the prior year. This year, the market expects an improvement in earnings (-$1.72 versus -$1.80).
  • Investors have driven up the company's shares by 235.23% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the future course of this stock, we feel that the risks involved in investing in CEMP do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months.

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