MannKind: A Pure Speculative Bet

| About: MannKind Corporation (MNKD)

by Cagdas Ozcan

Mannkind (NASDAQ: MNKD) may not offer attractive earnings per share compared to its peers. Despite having negative EPS for three consecutive years from 2010 to 2012, its stock price was still in the upswing in the first quarter of fiscal year 2013. For now, no one seems to care if the company is earning or not. Investors are keen on what's in store for MNKD in the upcoming months ahead.

Earnings Per Share Overview

The company reported total earnings per share of -$1.5 in 2010, but the loss was slightly minimized in 2011 at $1.32 per share. In 2012, it started the year with a negative first quarter EPS at 0.27, which is already an improvement from the previous quarter that ended with a negative EPS of 0.30.

The second and the third quarter saw further improvement at -0.23 and -0.22, respectively. The last quarter took a slight dip as it went back to the third quarter level at -0.23. All in all, MNKD ended fiscal year 2012 with -0.95 earnings per share.

While the quarterly and yearly EPS of Mannkind are shown in red marks to denote negative earnings, there are green marks as well, symbolizing growth. The fiscal year 2011 experienced a 13.63% EPS growth from the previous year, while 2012 ended with an even better growth rate at a whopping 38.95%. Many experts speculate that 2013 will also bring about a positive growth rate, even better than the 2012 growth data.

Stock Performance Overview

Despite the negative earnings year-on-year, investors remain optimistic for Mannkind and this is proven by the increasing stock price index of the company. It started fiscal year 2013 at $2.31 per share, and since then, the price never went back to this level to-date.

The next lowest point was on February 4 at $2.34. The price per share peaked at $3.41 on March 11, although it went to as high as $3.57 during the intraday trading. This amount is the highest so far in the last 52 weeks.

The sudden surge in price of Mannkind that saw a staggering 2013 year-to-date growth of 47% came as a surprise to many investors, particularly on a company that is not duly supported by positive earnings per share for the past few years. This may be good news for traders holding on to MNKD stocks, but some are skeptic on how long the bounce will last. In order to arrive at a wiser choice, it is best to take a look at the pros and cons of investing in Mannkind.

Cons of Investing in MNKD

If you are an investor, the downside of investing in Mannkind is the poor earnings-per-share performance. The losing streak makes it unattractive for shareholders hoping to gain from dividends. But if you look at the company more closely, you will understand why it was incurring losses in the past few years.

MNKD invested heavily in research and development, particularly on a very promising drug Afrezza. This drug candidate is inhaled insulin for the treatment of Type I or Type II diabetes, which is currently under the Phase III trial.

Its new drug application is expected to be resubmitted by the company in September or October 2013. The final decision is forecasted to be released in early to mid part of 2014. Until then, the earnings per share are expected to remain negative, and it is projected to break the losing streak only when the drug candidate Afrezza gets approval from the FDA and finally launched in the market. The drug is very likely to be approved by the FDA because if approved, it will be the only inhalable insulin on the market. Several peers like Pfizer (NYSE: PFE), Eli Lilly (NYSE: LLY) and Novo Vordisk (NYSE: NVO) have failed to offer such products to the market. Since there is a need for it among the relevant patients, Alfrezza is likely to be approved in a short time.

Pros of Investing in MNKD

For traders, Mannkind is a lucrative stock that can potentially offer long-term gains. In fact, many are already earning generous profits from short-term trading of MNKD. For those who invested in Mannkind at the start of the year, gains are already assured, especially if you are going to sell your shares today. However, some analysts will not recommend that unless you are an expert short-term trader looking for gains from price fluctuations.

In fact, Yahoo Finance has a quite aggressive one-year target estimate of Mannkind pegged at $5.45. On the other hand, the 12-month forecast of CNN Money starts from as low as $3 to as high as $6, with $4 as the median forecast, which is at par with the relatively conservative one year estimate of NASDAQ at $4.

Nonetheless, all the estimates show an increase in the price index from the current trading prices of Mannkind, and this makes it a stock to watch for this year with great potential for gains. On top of that, MNKD has a market capitalization of $838.1 million - while this amount belongs to the small cap category, there is a higher possibility for capital appreciation.

Final Recommendation

The current stock price index of Mannkind is in the upward trend and it is, in fact, trading next to its 52-week high. Some analysts may see the current prices already at the resistance level, but more are expecting that MNKD is going to break through it once its potential blockbuster drug Afrezza gets approval from the FDA.

The future of MNKD lies heavily on its drug candidate Afrezza. The outcome of the trial can have a tremendous impact on not just the earnings per share of the company, but also on its stock performance.

Although there is still no guarantee that Afrezza will be approved, many are hopeful that it will be given a "go" signal from the FDA after heavy expenditures by the company on clinical trial activities. Moreover, the results are encouraging, and Mannkind also has a sufficient number of patients on trial to make the results credible even if some patients will drop off from the program.

Many analysts have a general consensus on the recommendation of MNKD, and it remained the same for the past three months (Buy). If you already have a couple of shares in your hand then hold onto them until the price index reaches the median one-year target estimates of some financial experts.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: Efsinvestment is a team of analysts. This article was written by Cagdas Ozcan, one of our equity analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.