In the week ending April 17, novel coronavirus stocks working on a treatment saw a big-time rally as hopes for a cure increased dramatically. However, Lakeland Industries (NASDAQ:LAKE) actually fell 3% on the day. LAKE stock hasn’t fully broken down, but it’s certainly not one to chase at the moment.
The S&P 500 surged higher on Friday, thanks to a report on Gilead Sciences’ (NASDAQ:GILD) progress with remdesivir, a treatment for the coronavirus. While that treatment appears to be making progress, it’s unclear why so many other coronavirus-treatment plays were rallying too.
Is it good news for these small, under-funded biotech plays that Gilead makes headway? In any regard, we’re seeing a lot of stocks moving as the landscape continues to shift under various coronavirus developments. Let’s look at how it’s impacting Lakeland Industries stock.
What’s Up With LAKE Stock?
While we saw a spike in biotech plays on Friday, other coronavirus plays lagged. Names like Netflix (NASDAQ:NFLX) and Roku (NASDAQ:ROKU) turned lower after a red-hot run. Personal protection equipment (PPE) manufacturers like 3M Co (NYSE:MMM) eked out a gain on Friday, up 1%, but has had trouble gaining significant upside momentum lately.
LAKE stock has been similar. Shares have been stagnant over the past month following a surge in late February. That rally took shares from $12 to $28 in less than two weeks. A pullback ensued as shares now pinball between $14 and $18.
For traders and short-term investors, this range-bound action actually presents opportunity. Bulls can buy on pullbacks into support and sell into resistance. Should either level give way — support or resistance — LAKE stock could gain momentum in the respective direction.
But just because a stock is good for a possible trade does not mean it’s good for an investment. When it comes to Lakeland, that seems to be the verdict as well. The irrational price action is a concern and if we’re looking for coronavirus-related plays, it may be best to stick to the larger companies.
Valuing Lakeview Industries
Full-year earnings estimates for LAKE stock currently stand at 77 cents per share. That’s up from just 68 cents per share 90 days ago. Should Lakeland Industries hit that figure, it would represent 88% year-over-year growth from calendar year 2019. That’s despite estimates calling for revenue growth of just 7.3% to $115.7 million.
For both metrics, analysts expect growth to continue next year at a much lower pace. Specifically, they expect 10% earnings growth and 3.5% revenue growth, although it’s hard to put too much faith into those numbers at this time.
As it stands, it leaves LAKE stock trading at about 20 times this year’s earnings estimates. That’s not cheap, but not egregious either.
Revenue has been growing slowly but steadily over the past several years, while net income has been impressively climbing higher. While operating profiting and EBITDA have been a bit lumpier, Lakeland did also turn free cash flow positive last year. The balance sheet is in good shape too.
The Bottom Line on Lakeland Industries
Lakeland Industries isn’t a bad company. The valuation is semi-reasonable and the financials do not present any egregious red flags. For the time being, the technicals are okay too. So where’s the issue?
While the world feels like it has been turned upside down, the coronavirus impact won’t last forever. There will not be continuous explosive spikes in PPE demand and the biotech plays that shoot up hundreds of percent in hopes that they’ll find the cure will come crashing back down.
We saw a similarly irrational spike in LAKE stock in 2014 amid the Ebola breakout. Shares rallied more than 400% and never retested the highs (even amid this year’s spike). Admittedly, the stock never fully retreated and gave up all of its bountiful gains, but it took another outbreak six years later for it to gain any meaningful traction.
Because the coronavirus has had such a larger impact than the Ebola outbreak, one can expect a larger beneficial impact to Lakeland’s sales and earnings. However, those gains won’t last forever and once the coronavirus is on the decline, LAKE stock likely will be too.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.