KV Pharmaceutical Overvalued?

| About: K-V Pharmaceutical (KVPBQ)

KV Pharmaceutical (KV.A) surged 140% on the day following FDA approval. The next day it was up another 13% to $4.16 a share. That’s 153% in two days. Surely it is overvalued. Wrong!

KV.A operates in the drug delivery business. They also make both branded and generic/non-branded prescription drugs, competing with the likes of TEVA (NYSE:TEVA), Johnson and Johnson (NYSE:JNJ), and Watson Pharmaceuticals (WPI).

The company has $3.05 in revenue per share. Thus, shares are still trading for 1.36 times revenue. Competitors TEVA, JNJ, and WPI have revenue per share of 3.17, 2.75, and 1.95, respectively. Taking the lowest revenue per share, 1.95, and comparing it with KV.A’s gives a 43% discount for the stock.

Price-to-sales is 1.21, while competitors TEVA, JNJ, and WPI have a price-to-sales of 3.14, 2.71, and 2.04, respectively. Taking the lowest price-to-sales, 2.04, and comparing it with KV.A’s gives a 69% discount for the stock.

But more importantly, the FDA approval of its drug opens it up to huge possibilities. As an FDA spokeswoman noted, “Preterm birth is a significant public health issue in the United States. This is the first drug approved by the FDA that is indicated to specifically reduce this risk.” The key is the first drug approved to specifically reduce this risk. The first drug on the market will likely take a majority of the market.

And don’t forget big pharma. Pfizer (NYSE:PFE) looses patent protection on its blockbuster drug Lipitor. If this looks to be a blockbuster drug, which it very much could be, PFE or somebody else may try to buy it.

Could it go back to the average price of about $20 from 2000 to 2008? That will be a 380% rise from Monday’s closing price. A little high, but possible.

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