Is This The Right Time To Buy Questcor?

| About: Mallinckrodt PLC (MNK)

Questcor Pharmaceuticals (QCOR) is up about 110% year-to-date, and it looks like the company has proved the doubters wrong again. There was a big rise in the stock price as the company announced its second quarter results, which beat the street expectations again - Questcor has done that for eleven consecutive quarters. However, over the past month, the stock has pulled back and it is down 22%. So, does it present an opportunity to buy? Yes, I believe so. I have maintained even in the tougher times that Questcor will continue to grow and it will be a solid long-term investment, and I stand by my earlier stance. I will try to list some of the factors behind my optimism about Questcor in this article.

Price Movement

We are less than a month away from the next earnings announcement, which I believe will be another short-term catalyst and stock price will again go up substantially (I am expecting a rise of between 5-7%). Questcor stock went up by about 29% after the last earnings announcement - while past price movement does not guarantee future price movements. It does show a pattern, and Questcor has risen on five occasions out of six most recent earnings announcements. The table below shows the price movement after the earnings announcement.

Quarter

Date

Change in Price after earnings announcement

Price movement in the month before earnings announcement

Q1 2013

July 30, 2013

Up 29%

Up 12.68%

Q2 2013

April 30, 2013

Up 12%

Down 2.1%

Q4 2012

February 26, 2013

Up 1.01%

Up 27.33%

Q3 2012

October 23, 2012

Up 0.92%

Up 36%

Q2 2012

July 24, 2012

Down 13%

Down 16%

Q1 2012

April 24, 2012

Up 7.78%

up 6.25%

Click to enlarge

The last column in the table shows the price movement in the month before the earnings announcement. There is only one quarter where we have seen a big jump in the stock price when the price in the past month has also increased substantially. On other occasions, a large increase in the month prior to earnings date has been followed by a small rise. We are still a month away from the earnings announcement and the stock is already down 22%, and I believe the stock has entered oversold territory - I expect the stock to gain substantially over the next month. In my opinion, we will see a smaller gain after the earnings announcement than in the month before October, 21. That's why my expectations about the rise after the earnings date are smaller compared to the last two quarters.

Questcor Set to Have Another Blockbuster Quarter?

The company has developed a habit of beating analyst estimates, and I expect the trend to continue. One of the biggest reasons for the continued revenue growth is that most of the target markets have moderate penetration at the moment. There is still considerable room for Questcor to increase its sales. The company sold 7,050 vials during the last quarter, 50% more than the same quarter last year. At the moment, the company is trying to expand sales from the Rheumatology segment - last quarter was the first full quarter of Rheumatology efforts and recorded shipment of 300 vials, making it the best debut by the company in any of the segments. Furthermore, Questcor has hired a small team (five to ten) of sales representatives to expand into Pulmonology for Symptomatic Sarcoidosis. The sales for this segment will start in the fourth quarter, so expect another positive update on this in the earnings call - this is a segment which is being given a lot of importance by the company. Sales from Nephrotic Syndrome segment are growing at about 19%, Multiple Sclerosis is growing at about 27% sequentially and Rheumatology segment will again show substantial increases as well. I believe the sales estimates of the street will again fall short of the real numbers on October 21, 2013.

Conclusion

I believe the stock is oversold at the moment, and it will soon start to go up. Furthermore, the long-term business prospects are very bright - there are many indications that Questcor can expand once the market becomes penetrated. I maintain that Questcor is a solid long-term investment and the current price presents a good entry point.

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

Business relationship disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. IAEResearch is not a registered investment advisor or broker/dealer. This article was written by an analyst at IAEResearch and represents his/her personal opinion about the companies mentioned in the article. The article is for informational purposes only and it should not be taken as an investment advice. Investors are encouraged to conduct their own due diligence before making an investment decision. I am not receiving any compensation (other than from Seeking Alpha) for this article, and have no relationship with the companies mentioned in the article.