Rapid Chinese Growth Is Powering This Cheap, Cash Rich $5 Pharma Stock

I first profiled SciClone Pharmaceuticals (NASDAQ:SCLN) back in late January when the stock was trading at $4.75 a share. I rode the shares up to a little over $6.50 and took profits a few months later. Now with shares back down to $5 a share and the company coming through with a solid earnings report, it may be time to get back into this fast growing pharma company.

Key highlights from earnings report:

  • Revenue grew 22% Y/Y to $40.3mm.
  • Earnings came in at 19 cents a shares, two cents better than estimates.
  • Company added 120 sales representatives in China which added to expenses in quarter but also contributed significantly to its revenue growth.

"SciClone Pharmaceuticals provides therapies for the treatment of oncology, infectious diseases, cardiovascular, urological, respiratory, and central nervous system disorders in the People's Republic of China and internationally." (Business description from Yahoo Finance).

Five additional reasons SCLN has plenty of upside at $5 a share:

  1. The company has a rock solid balance sheet with over $70mm of net cash on its balance sheet (approximately 25% of market capitalization).
  2. The stock is selling at the bottom of its five year valuation range based on P/E, P/B, P/CF and P/S. This was the fourth straight earnings report that the company beat earnings estimates.
  3. Earnings are ramping up nicely. The company made 49 cents a share in FY2011 and is on track for 79 cents a share in FY2012. Analysts have SciClone coming in at just under $1 a share in EPS in FY2013.
  4. The company has also grown revenues at better than a 27% annual clip over the past five years. Analysts have SciClone increasing sales at around a 30% rate this year and over 15% in FY2013. It has a five year projected PEG of under 1 (.50).
  5. The stock is cheap given it sells at just over 5 times forward earnings, a deep discount to its five year average (13.1).

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SCLN over the next 72 hours.