Amarin (NASDAQ:AMRN) has been pretty disappointing lately, as investors had high hopes for 2020. Many considered it reasonable speculation that Amarin stock could double this year.
That’s still possible, but the charts — and overall market — will need to start acting better. On the plus side, AMRN stock hasn’t completely broken down. On the downside though, Amarin’s charts don’t look all that great. They certainly don’t entice me to get long.
How about the fundamentals?
On Feb. 25, Amarin reported its fourth-quarter results. GAAP earnings of 2 cents per share beat expectations by 4 cents, as analysts were looking for a loss. Revenue of $143.3 million surged 85% year over year and beat estimates by more than $5 million.
Management reiterated its guidance from earlier in the year, calling for $650 million to $700 million in revenue. Analysts have finally caught up, with consensus expectations now sitting at $695 million. Amarin ended the quarter with $644.6 million in cash, a slight draw on its previous balance last quarter of $673.2 million.
Shares fell 2% in after-hours trading on the report.
Valuing Amarin Stock
We’re talking about a company with virtually no long-term debt, more than $600 million in the bank and intense revenue growth. On top of that, Amarin stock is pivoting toward profitability. Current assets are almost four times the size of current liabilities, indicating no short-term concern over the balance sheet.
So what gives?
I think this may be a case of “what have you done for me lately?” In other words, Amarin shares are up from sub-$5 to more than $20 in a relatively short period of time. After closing at $17.50, it’s simply biding its time before resuming higher. We’ll look at the charts in a minute, but from a fundamental perspective, it’s hard to be too bearish.
Based on the $695 million consensus revenue estimate for this year, it would represent ~62% sales growth. Next year, estimates top $1 billion. Analysts expect a loss of 7 cents per share for 2020. But based on Amarin’s better-than-expected profit results this quarter, perhaps management can push this figure to break-even.
For me personally, the push for growth is more important than short-term profit. Vascepa is driving the company’s growth here in the U.S. However, it was just approved in Canada in December (and going on sale in February). Also in December, European regulators accepted Amarin’s marketing application, with approval expected in late 2020. Lastly, clinical trials have begun in China and should be completed within 2020.
In short, Amarin seems to be doing everything right. It will have to fight through some patent litigations (with a decision hopefully coming in late March), but short of any catastrophic outcome, this company looks clean.
It’s a reasonably speculative healthcare play. Trading at roughly 10 times this year’s revenue estimate may seem expensive, but not if Amarin delivers. It’s also a potential M&A target, as biotech and big pharma constantly look for growth.
Trading Amarin Stock
The fundamentals and long-term potential checks out. Unfortunately, the technicals could be better for Amarin stock.
In mid-December, Amarin surged to $26, but reversed off those highs and closed lower on the day, near $23. It was a tough day for the bulls. The next day, shares lost $22 and the 20-day moving average, which then turned into resistance. It was the first sign that momentum had waned and now favored the bears.
Amarin has since lost the 50-day and 200-day moving averages, as downtrend resistance (blue line) continues to squeeze the share price lower. It filled that big November gap, temporarily taking out $17 the other day.
Here’s what I’m looking for in the coming days following its earnings report. I need to see Monday’s low of $16.80 hold. Below that and the $16.50 mark, the $14 level will technically be on the table.
Things get tricky when taking the broader market into consideration. We’ve seen the S&P 500 shed about 8% in just a few trading sessions. It’s not highly recommended to buy a stock that’s in a downtrend and is enduring an unfavorable post-earnings reaction (at least, so far).
I don’t know if Amarin stock will hold the recent lows or not. But what I do know is that shares need to reclaim downtrend resistance in order to show that bulls are gaining momentum. It would be even more convincing if the stock could reclaim the 20-day and 200-day moving averages, putting the 50-day moving average and $20 on the table.
Let’s see how Amarin stock trades the rest of this week. I like this company long term, but right now, the charts are not favorable.