Cash Rich, Fast Growing Biotech With Further Upside Ahead

Most of my positions in the biotech sector are in stocks that have a lot of promise, but little if anything in the way of current earnings. My latest foray in the space involves a company that has a different model as it actively acquires existing drugs. Not only does has a history of fast growing revenues but substantial and increasing earnings as well

"Spectrum Pharmaceuticals (SPPI) is a biotechnology company that engages in acquiring, developing, and commercializing prescription drug products primarily in the areas of hematology and oncology." (Business description from Yahoo Finance)

8 reasons SPPI is a solid buy for growth investors at under $14 a share:
 

  1. The company has grown revenues at a 60% annual clip over the past five years. Analysts believe Spectrum will increase sales at better than a 25% rate in both FY2012 and FY2013.
  2. The company has grown through strategic acquisition in hematology and oncology focused biotech areas. It is the process of purchasing Allos Therapeutics (ALTH) which will give it access to Folotyn product which is prescribed by the same doctors that use Spectrum's drug Zevalin.
  3. The company has over $185mm in net cash on its balance sheet (over 20% of market capitalization)
  4. Consensus earnings estimates for both FY2012 and FY2013 have risen sharply over the past two months.
  5. Unlike a lot of the stocks in this sector, Spectrum has real cash earnings. The company earned 84 cents a share in FY2011. Analysts project it will make $1.81 a share in FY2012.
  6. The three analysts that cover SPPI have price targets ranging from $17 to $28 on the stock with a median price target of $25 on SPPI.
  7. The stock is selling for less than 8 times forward earnings despite its enviable record of growth, a deep discount to its five year average (17.3)
  8. SPPI is selling at the bottom of its five year valuation range based on P/S and P/E.

Disclosure: I am long SPPI.