Amarin (NASDAQ:AMRN) has had its share of ups and downs, particularly last month. While the rest of the market has been banging out new high after new high, the same cannot be said for Amarin stock.
Earlier this month, the stock was halted in midday trading for news pending. That came on Friday December 13th. News was ultimately released after the close, leaving investors, traders and option holders (with weekly expirations on the line) in a frustrating position.
Ultimately, the company released good news though and shares were set to run higher on Monday. They did initially, but bulls suddenly found those gains unwinding. What was supposed to be a day of nice gains ended up being a 5% loss.
It hasn’t gotten much easier, either. The price of AMRN stock is down about 20% from the Dec. 16 high, when shares began trading again. So what should investors make of Amarin stock?
Valuing Amarin Stock
Circling back to the trade-halting news, the Food and Drug Administration approved a cardiovascular benefit claim for the company’s Vascepa treatment. FDA approval followed by a selloff? It makes no sense. Some have questioned the intellectual property of the drug. Others have argued that there’s litigation and valuation risk in Amarin stock.
Regarding the latter argument — valuation — one could certainly make a case. Amarin stock commands a $7.7 billion market cap, it’s not yet profitable and on a trailing basis, has cash burn instead of positive free cash flow.
That said, it also has growth.
Analysts estimate that sales will grow more than 80% this year, to $416 million. In 2020, estimates call for $664.5 million in revenue, representing growth of 64.4%. They also expect the company to generate a profit next year, although only to the tune of 6 cents per share. Still, this leaves the AMRN stock price trading at more than 11.2 times next year’s revenue estimates.
With Vascepa, some argue that it’s being undervalued by the market; that the drug could have a peak revenue run rate of $3 billion per year — and that’s not including the growth of Amarin’s other treatments.
Despite the lofty price-to-sales figure, many bulls believe that Amarin stock is actually undervalued and because of its treatments, believe the company could be an M&A target going forward.
That’s a fair takeaway, particularly if Amarin gains traction with its new drug, while becoming profitable and cash-flow positive in the next 12 months. It helps that it has a very lean balance sheet — with long-term debt of just $8.8 million, while current assets roughly quadruple the size of current liabilities.
Finally, biotech companies have shown little fear of large deals. Most notably, Bristol-Myers Squibb (NYSE:BMY) buying Celgene for ~$74 billion and AbbVie (NYSE:ABBV) buying Allergan (NYSE:AGN) for ~$63 billion come to mind. So scooping up AMRN for $10-plus billion doesn’t seem out the realm of possibility.
Trading AMRN Stock Price
If Amarin stock is so good, then why does its stock trade so poorly?
Investors tend to adopt a “what have you done for me lately” mindset. Meaning, even if a stock has done well in the past, that’s not what matters to them. They care about what the stock has done lately, is doing now or is going to do. And as of right now, the AMRN stock price hasn’t done much.
Lest we forget shares were trading for about $3 in September 2018, before erupting higher by 314% — in one day! — and closed at $12.40. Within about six weeks, Amarin stock had climbed 677% to $23.34, a level that has ultimately become resistance.
The AMRN stock price has been continually rejected from this mark, although it did penetrate this level twice in the past two months. While Amarin’s post-trading halt decline is certainly frustrating, the stock is still okay. At least, for now.
Amarin stock is holding up over the 50-day moving average, as well as uptrend support (blue line). Should these marks give way, it likely puts $19 on the table, with the 200-day moving just below that mark.
If shares can reclaim the 20-day moving average, bulls should look for another test of $23. North of $23 and things get pretty orderly. It puts the November high of $24.67 on the table, followed by the December high of $26.12.