You've posted some good arguments versus what you believe is my irrational exuhberance viz. Questcor stock price. So let me see if I can respond accordingly:
1. I do maintain my long term (1 year) estimate of $150 PPS for a very simple reason. Based on the information available (Acthar trajectory, coverage continuities, margins, signficant change in net coverage from medicare/medicaid, rapid growth of sales force and especially the growth and opportunities in NS) I am very confident that 2013 EPS will exceed $5.00 per share. And if NS truly takes off this year, significantly more than that.
2. With the top and bottom line growth associated with #1, the PEG ratio (what we used to call the growth rate factor) should be at least 1.0 or a P/E = Growth in excess of 50% or 50X...MINIMUM, but I am discounting that back to 30X (1 1/2 times industry average P/E of 20X) allowing for some residual overhang of the "issues" like Aetna and Fed. Investigation into marketing practices. Clearly the coverage debate has been moving in Questcor's favor BUT I am reluctant to call that a total victory just yet.
3. Simple math then takes a relatively conservative $5.00 EPS times a 30X P/E and there you have $150 per share. Of course both of these factors could be wrong, but it would go completely against what I expressed in #1 and #2 above. Only time will tell.
But there are a couple of other things at play viz. Questcor...
1. My old friends at major institutional houses (plus lesser knowns) now own upwards of 95% of all the stock outstanding (the "Float") leaving very little for retail investors. As 1,2 & 3 above achieve progressive traction they will NOT be inclined to walk away from their holdings (some of which are index driven)...Just not in their nature. And they may try to squeeze even more out of the limited float available. This will put intense pressure on the P/E to rise toward parity with growth.
2. The huge short position on Questcor has been generally architected (quite successfully thus far) by amatures (IMHO). These schemes are not uncommon but generally don't last even this long as those who initiated them cover long before they reverse course for the rest of the world to see...This has NOT happened yet. So some would say "don't they know something the rest of us don't" and the answer is that the only thing that they really know is their own scheme. These are referred to as bear traps or short traps, again not uncommon though rarely this extreme or carried this long.
3. Questcor's stock price, prior to the two key downside forces of Aetna (and the non-existing extension to other insurers) and the federal investigation (very high probability that it will amount to little or nothing though it could endure for a while as "an investigation"), was on a share price trajectory that would have probably had it close to a $100 today. The herd reaction, coupled with a relentless well orchestrated short attack has it at about 1/4 of that.
4. I projected $40's after earnings on all above, particularly short covering. IF in fact the compression I have been discussing is released (pure financial "energy") quickly it could easily move into the $50's and take out the 52 week high of around $59... IF that happens a second surge of new buyers will likely enter (all competing for that tiny float). So you and I are in accord on the $50's over the next couple of months.
5. One last point...The first quarter earnings should be released second or third week of April. IF, as I believe, Q4 is stellar (I'm at $1.10 fully diluted) and Q1 surpasses Q4 (I'm currently putting it at $1.25) then total confirmation will be achieved and annualized earnings will be over $5.00 and P/E well on its way to 30X or more.
Not rocket science. Questcor has an amazing franchise, is really only at the second or third stage of its growth curve which I continue to believe has the potential to go asymptotic based on NS alone...and other more medically astute people like Pharmaman and research astutes like Mikey have shown us that other indications have huge potential as well. So based on that I will go out on a final limb here and say that 2-3 years from now my $150 end of 2013 PPS estimate will seem like dust in the rear view mirror going up another 2-3 times that by end of 2015...assuming that there has been no secular shift in pricing, competition (I still believe unlikely) or a complete buyout of Questcor.
You should hope I am right on my analysis here. I have made a decent living doing this for many large and not so large pharmas and biotechs for decades now as an investment banker and more recently as an M&A consultant to several biotechs here in Houston. I have been wrong on occasion in the past, but not very often and certainly not with an opportunity as glaring as Questcor. As I have said previously, I violated my sacrosanct 20% concentration limits in my active portfolio because I believe that the analysis above has been ignored or rejected causing a profound assymetry in stock performance WITH the tried and true conviction that all markets eventually find equalibrium based on actual fundamental performance...Has just not happened YET!!!
Sentiment: Strong Buy
maxdad - appreciate the response. great detail and i really cant agrue most of it nor do i want to as again i am long and i also violated my max 10% holding by adding to qcor on friday in low 28s. im at 15% and that is it for me.
you make many great points and I really hope you are right but I guess the main thing we disagree on is the PE ratio and 2013 eps. I don't believe Qcor has ever traded at a PE of 30 even before Citron and the investigation and insurance issues. stock was around 45-50 before Citron arrived - yes it went up 10 to 59 but that was the day before Citron attacked so that $10 rise was orchestrated so DIRTY Citron and friends could short as high as possible. so lets use 45-50 then as price and believe trailing eps at around that time was around $2 which leads to a 20-25 pe range. So to me that is best case PE range. I think even if investigation turns up nothing (which i believe) and insurance issues going forward are not an issue qcor will still be hard pressed to get back its 20-25 pe range as investors will always be reminded of the potential risks with qcor so a 20 pe seems like best case here
again we have to remember (something lonewolf seems to ignore) is that pe is not just a function of growth rate but also risk. You can have 2 companies with same growth rate but if one has more predictable cashflows (ie. has 4 drugs generating its cashflow vs just 1) it will command a higher pe. Qcor has one drug as its cashflow generator and why there is above average risk here not to mention the extremely high price of the drug which was intended for the 1 indication for orhan status yet they are using this price for all their indications.
so 20 pe x 5 eps = 100 so I see $100 as best case at year end
but im just playing it more conservative with 4.25 eps x 15 pe = $63
but i do realize this has the potential to hit $80-100 range as well
just I do not see anything over $100 and certainly not $150
should be exciting to see how it all plays out
lets just say i will be thrilled to admit im wrong if this is over $100 by year end