Amarin: momentum stock or long term investment?

Amarin as a momentum stock

By Zacks Equity Research about Amarin

Even though momentum is a popular stock characteristic, it can be tough to define. Debate surrounding which are the best and worst metrics to focus on is lengthy, but the Zacks Momentum Style Score, part of the Zacks Style Scores, helps address this issue for us.

For AMRN, shares are up 7.44% over the past week while the Zacks Medical – Biomedical and Genetics industry is flat over the same time period. Shares are looking quite well from a longer time frame too, as the monthly price change of 2.81% compares favorably with the industry’s 4.34% performance as well.

Considering longer term price metrics, like performance over the last three months or year, can be advantageous as well. Over the past quarter, shares of Amarin have risen 31.09%, and are up 38.68% in the last year. In comparison, the S&P 500 has only moved 6.59% and 27.71%, respectively.

Investors should also take note of AMRN’s average 20-day trading volume. Volume is a useful item in many ways, and the 20-day average establishes a good price-to-volume baseline; a rising stock with above average volume is generally a bullish sign, whereas a declining stock on above average volume is typically bearish. Right now, AMRN is averaging 10,565,889 shares for the last 20 days.

Over the past two months, 5 earnings estimates moved higher compared to none lower for the full year. These revisions helped boost AMRN’s consensus estimate, increasing from -$0.09 to -$0.02 in the past 60 days. Looking at the next fiscal year, 4 estimates have moved upwards while there have been 2 downward revisions in the same time period.

Taking into account all of these elements, it should come as no surprise that AMRN is a #2 (Buy) stock with a Momentum Score of A. If you’ve been searching for a fresh pick that’s set to rise in the near-term, make sure to keep Amarin on your short list.

How about the long term?

Through Investor Palace

After the market closed on Friday, the FDA announced that it had approved Amarin’s (NASDAQ:ARMN) fish oil drug, Vascepa, for new indications. The AMRN stock price rose on the news initially, but has since tumbled. In all likelihood, many short sellers, using their typical “short on downward momentum” approach, have jumped into Amarin stock.

I believe that the decline of Amarin stock is completely unjustified and advise longer-term investors to buy AMRN on its current weakness.

I will try to estimate the fair valuation of Amarin stock. Roth Capital is estimating peak annual U.S. sales for the drug of $3.2 billion. Let’s conservatively say that Vascepa averages annual sales of $2.5 billion, including its revenue from overseas markets. The mid-sized (not tiny, not huge) pharma companies, like RegenronVertexBiogen and Incyte trade at an average price-sales ratio of around 6 or 7.

Let’s conservatively give Amarin stock a P/S ratio of 5 because of its reliance (for now) on a single product whose U.S. exclusivity ends in nine years. Multiplying 5 by our earlier annual sales figure of $2.5 billion, we get a valuation of $12.5 billion. The current market cap of Amarin stock is just over $7 billion. Of course, in any takeover, AMRN would probably command a much higher P/S ratio.

Bottom Line on Amarin Stock

Some on the Street seem to be greatly underestimating Vascepa’s potential and meaningfully exaggerating its legal threats. As a result, short sellers have targeted Amarin stock and Amarin stock price is quite undervalued, making the shares quite attractive for long-term investors.

Previous post about Amarin

Click here for more news
Click here for the Stock of the Week

2 thoughts on “Amarin: momentum stock or long term investment?

  • Pingback: Amarin UP high in pre-market, what's going on? - Ace of Stock

  • January 17, 2020 at 13:39

    Your analysis is logical. One Caveat, Roth Capital’s estimate for peak sales of $3.5 billion is already conservative by a long shot. So your conservative estimate is at least a double conservative. I believe, and John Thero does too (his statement at JPM this week), implied Lipitor Type Numbers ($12.9 billion). We all know how conservative JT is. My guess is $19.8 billion peak sales.


Leave a Reply

Your email address will not be published.