On Friday Lannett Company (LCI) announced a public offering of 5,869,566 shares of the company's common stock at a price of $18 per share. The offering includes 4,250,000 shares offered by the company and 1,619,566 shares offered by certain selling stockholders of the company.
The company expects to receive net proceeds of approximately $71.5 million, but will not receive any proceeds from the sale of shares by the selling stockholders. The company intends to use the net proceeds from the offering for general corporate purposes, including, without limitation, research and development, general and administrative, manufacturing and marketing expenses, and for potential acquisitions of companies.
After the announcement it was only natural for the stock to take a dive and the stock closed down over 10% on Friday.
So the question is, should you buy the dip?
To begin with the company is exhibiting very high growth. The average analyst estimate calls for revenue growth 32% this year, 21% for 2014 and 13% for 2015.
However the stock is also trading at a PE of 40. So the growth is baked in the cake and you are not getting a discount.
The company currently has 30 million shares outstanding. So the 4.25 million new share will be dilutive by about 14%. So EPS will have to be adjusted by 14% less.
The company has had a fantastic ride this year. and is prone to a big correction even in the best of times.
The 52 week range of the stock is between $4 - $23.42.
On the plus side the stock has very few short interest which probably means the market does not see too many problems with the stock. The company's balance sheet is in perfect condition and over all I like the sector and the company's products.
I have to admit I like the company but would like to buy it at more realistic levels. While the fact that many new shareholders bought at $18 a share probably means that they are confident the stock will not fall much from those levels, on the other hand, buying at current levels won't make you much money, for this is not a cheap stock.
Conclusion: If you want to buy, wait for a correction at around the $14 level. This is not a cheap stock and there is a risk of a greater correction due to the stock's fantastic returns over the last twelve months.