Are you interested in biotech companies with strong fundamentals? Today we focused on biotech stocks that have strong profits as well as cash in hand. These traits are key because generating profits and having cash could fuel innovative R & D, strategic acquisitions, or long term investments, all of which could bring the stock price roaring upwards. Keeping these ideas in mind, we came up with a pretty interesting list.
The Operating Profit Margin is a profitability ratio that measures the effectiveness of the company's operating efficiency. This metric allows investors to see how much profit is left after all variable costs are covered. If the company's margin is increasing over time this means that it's earning more per dollar of sales. Finding trends in the Operating Profit Margin helps investors identify companies that are improving profitability over time and managing the economic landscape better than competitors.
EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. EPS growth rates help investors identify stocks that are increasing or decreasing in profitability. This profitability metric is generally a key driver in the price of the stock as it directly correlates to the profitability of the company as a whole.
The Current ratio is a liquidity ratio used to determine a company's financial health. The metric illustrates how easily a firm can pay back its short obligations all at once through current assets. A company that has a current ratio of one or less is generally a liquidity red flag. Now this doesn't mean the company will go bankrupt tomorrow, but it also doesn't bode well for the company, and may indicate that it could have an issue paying back upcoming obligations.
The Quick ratio measures a company's ability to use its cash or assets to extinguish its current liabilities immediately. Quick assets include assets that presumably can be converted to cash at close to their book values. A company with a Quick Ratio of less than 1 cannot currently pay back its current liabilities. The quick ratio is more conservative than the Current Ratio because it excludes inventory from current assets, since some companies have difficulty turning their inventory into cash. If short-term obligations need to be paid off immediately, sometimes the current ratio would overestimate a company's short-term financial strength. In general, the higher the ratio, the greater the company's liquidity (i.e., the better able to meet current obligations using liquid assets).
We first looked for biotechnology stocks. We next screened for businesses with strong profit margins (1-year operating margin>15%)(1-year fiscal EPS Growth Rate>10%). We then looked for companies with a large amount of cash on hand (Current Ratio>2)(Quick Ratio>2). We did not screen out any market caps.
Do you think these stocks have strong operations? Use our list along with your own analysis.
1) ViroPharma Inc. (VPHM)
ViroPharma Inc. has a Operating Profit Margin of 36.59%, a Earnings Per Share Growth Rate of 14.14%, a Current Ratio of 6.12, and a Quick Ratio of 5.57. The short interest was 13.45% as of 07/03/2012. ViroPharma Incorporated, a biotechnology company, develops and commercializes therapeutic products that address serious diseases in the United States and internationally. It focuses on developing products used by physician specialists or in hospital settings. The company markets and sells Cinryze, a C1 esterase inhibitor therapy for the routine prophylaxis against angioedema attacks in adolescent and adult patients with hereditary angioedema, a life-threatening genetic disorder; and Vancocin HCl capsule, an oral capsule formulation for the treatment of C. difficile-associated diarrhea (CDAD) and to treat enterocolitis caused by staphylococcus aureus, including methicillin-resistant strains.
2) Obagi Medical Products, Inc. (OMPI)
Obagi Medical Products, Inc. has a Operating Profit Margin of 20.95%, a Earnings Per Share Growth Rate of 23.37%, a Current Ratio of 4.65, and a Quick Ratio of 4.29. The short interest was 4.87% as of 07/03/2012. Obagi Medical Products, Inc., a specialty pharmaceutical company, develops, markets, and sells topical aesthetic and therapeutic prescription skin care systems. It offers Obagi Nu-Derm System, including prescription and OTC drugs that are used for the treatment of fine lines, wrinkles, acne, photo damage, hyperpigmentation, melasma, laxity, and skin sallowness; Obagi Condition and Enhance Systems that are used before and after surgical and non-surgical cosmetic procedures; Obagi-C Rx System comprises Vitamin C with 4% hydroquinone system to treat skin conditions resulting from sun damage and the oxidative damage of free radicals; and Professional-C products consisting of Vitamin C serums for the treatment of antioxidant protection, fine lines, wrinkles, and hyperpigmentation. The company also provides ELASTIderm Eye and Dcolletage, which increases the elasticity and skin tone of eyes, face, neckline, and chest.
3) 3SBio Inc. (SSRX)
3SBio Inc. has a Operating Profit Margin of 23.02%, a Earnings Per Share Growth Rate of 31.00%, a Current Ratio of 17.72, and a Quick Ratio of 17.19. The short interest was 2.72% as of 07/03/2012. 3SBio Inc., a biotechnology company, engages in the research and development, manufacture, and distribution of pharmaceutical products in the People's Republic of China. Its principal products include EPIAO, an injectable recombinant human erythropoietin to stimulate the production of red blood cells in patients with anemia and to reduce the need for blood transfusions; and TPIAO, a recombinant human thrombopoietin to treat chemotherapy-induced thrombocytopenia. The company also offers Intefen, a recombinant interferon alpha-2a product for the treatment of carcinoma and viral infectious diseases; Inleusin, a recombinant human IL-2 product to treat renal cell carcinoma, metastatic melanoma, and thoratic fluid build-up caused by cancer and tuberculosis; and Iron Sucrose Supplement, a prescription drug for treating anemia, as well as for patients with end-stage renal disease.
*Company profiles were sourced from Finviz. Financial data was sourced from Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.