Valeant Pharmaceuticals Intl Inc (VRX) Stock Is Due for More Punishment

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Shares of Valeant Pharmaceuticals Intl Inc (NYSE:VRX) rose as much as 8.5% Feb 2., reaching a session high of $14.90 — almost 30% above VRX stock’s normal volume. And for what? There were no new developments last Thursday. Nor were there any material improvements in the company’s fundamentals to support those gains in Valeant stock.

Valeant Pharmaceuticals Intl Inc (VRX) Stock Is Due for More Punishment

Instead, VRX stock has become a haven for speculators, not investors, who are drawn to the appeal of a cheap price.

All the while, they’re forgetting that Valeant stock is cheap for reason. The embattled Canadian drug company, which has become synonymous with “price gouging,” has been more successful at boosting its drug prices than growing VRX stock.

Valeant Stock Is Cheap for a Reason

With some $30 billion in debt on the balance sheet, the laundry list of things the management needs to do to repair Valeant is long. First and foremost, the company must successfully renegotiate its debt covenants for a smaller amount. Aside from offering cash flow relief, Valeant might be able to gain on annual interest expenses. In order to drive significant VRX stock higher, Valeant must find a way to boost operating income, which is tough to do since it can’t raise drug prices.

Until Valeant Pharmaceuticals can demonstrate it can consistently execute on these measures, VRX stock will continue to attract short sellers, who have been the only ones making money on the stock. To be sure, it’s possible that recent longs were able to profit on the stock’s recent volatility. The 8.5% spike on Thursday was one example. But as we’ve seen over the last couple weeks, each gain has been followed by a subsequent fall.

In other words, the longs — understandably — lack conviction. Valeant, which is looking to sell off assets to grow cash, has not shown that it can be trusted. And that’s a double-edge sword. Last week, for example, Bloomberg reported that VRX’s central and eastern European assets — worth an estimated $1 billion — have attracted interest from potential private equity bidders, which Bloomberg didn’t name.

On the positive side, it’s encouraging that Valeant, which has a market cap of around $5 billion, could sell non-core assets that could generate one-fifth of its market cap. At some point, however, Valeant will need to grow the top line. And once it runs out of assets to sell, what will it have left that can grow profits?

Bottom Line for VRX Stock

Once Canada’s most valuable company, Valeant stock traded north of $300 in the summer of 2015, giving it a market cap of more than $110 billion. VRX stock, which closed Feb.8 at $14.68, has plunged 84% in twelve months, punishing its shareholders. And with limited options to grow revenue and profits, Valeant stock speculators who are chasing these shares today are begging for more punishment.

As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/02/valeant-pharmaceuticals-intl-inc-vrx-stock-more-punishment/.

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