I usually don't prospect for investment opportunities because I think I
lack the expertise to perform the necessary analysis. My standard MO is
to let others do the initial prospecting and analysis and then I
subsequently decide if I think the actual business is worth an
investment. Nevertheless, I came upon LCI while performing a stock
screen on Morningstar just to see what would turn up. I don't recall my
exact criteria, but in general I was looking for aggressive growth with
a track record of earnings. LCI was the only company selected.
I'm posting this here so that other may take a look and chime in with their own thoughts.
Lannett has been in business for 71 years. Headquarters in Philly, PA.
They make generic drugs and drug pre-cursor chemicals. They are
beginning to develop some branded drugs. Their products sell world-wide
through a number of channels.
They started trading on NYSE 12/13/2013 (I don't know where they traded
prior to that). They had a public offering of 5.9 million shares in
Oct, 2013. 2013 was the first time the market cap exceeded $1B,
currently $2.3B. I could not find the reason for negative earnings for
1Q14. I'm sure it's explained, but I didn't know how to locate the
appropriate document.
Here's some financial information I gleaned from EDGAR. LCI's fiscal
year ends in June so Q1 ends Sep 30 prior year. Revenue is the top-line
gross revenue. EPS are fully diluted. (now to see if I can make this
display in a reasonable manner):
.....1Q12 2Q12 3Q12 4Q12 2012
Rev 28.9 27.7 30.7 35.7 123
EPS .01 .02 .06 .05 .14
.....1Q13 2Q13 3Q13 4Q13 2013
Rev 35.3 36.6 39.0 40.1 151
EPS .10 .10 .14 .12 .46
.....1Q14 2Q14 3Q14 4Q14 2014
Rev 45.8 67.3 80.0 80.7 273.8
EPS -.20 .46 .63 .73 1.62
.....1Q15 2Q15
Rev 93.4 114.8
EPS .94 1.21
3 Likes
LCI stock price is rather uneven. It has a high current growth rate but it also had long periods of sideways movements. 16 year chart:
http://invest.kleinnet.com/bmw1/stats16/LCI.html
Denny Schlesinger
3 Likes
Denny,
Thanks for the reply. I’m not sure I would give much credence to whatever happened at almost any company 16 years ago. Current CEO has been driving the ship for 9 years, so there’s an argument to look back that far. But even though we only have history to go on, investing is a matter of looking ahead, so I generally don’t give a lot of weight to anything older than 3 or 4 years.
It might be an interesting exercise to look at similar charts for all my investments, I’m not sure it would tell me anything I could use in making a buy/sell decision. Is this a normal part of your analysis routine? If so, what weight do you give a chart that looks like this? Is it an automatic dis-qualifier?
Hello,
The loss for Q1 14 relates to a 12.6 mil. after-tax charge for extension of a contract with Jerome Stevens Pharmaceuticals. If I were you, I would adjust Q1 14 eps to .23 rather than the loss shown.
I don’t have time right now but when I do, I will investigate LCI and post my thoughts.
Many thanks for all the sharing you do here,
Mike
It might be an interesting exercise to look at similar charts for all my investments, I’m not sure it would tell me anything I could use in making a buy/sell decision. Is this a normal part of your analysis routine? If so, what weight do you give a chart that looks like this? Is it an automatic dis-qualifier?
We have a problem, we can’t see ahead and the past is the only source of information we have. It’s not really that bad. Actuaries can predict how long people will live on average and base the life insurance industry on it. One important feature of mortality tables is that they tend to have a normal distribution. The maths of normal distribution are well known and not too complicated. The problem for investors is that price charts don’t have a normal distribution but a power law distribution, like earthquakes. The power law maths are complicated and don’t resolve to a single average. In effect this makes price charts much less useful than mortality tables. The creators of the Black-Scholes option pricing method used normal distribution for their calculation even though it is not right. This is one of the causes of Black Swans. Still, it works most of the time and investors don’t have much of a choice but to use it.
Yes, looking at charts is a normal part of my analysis routine. The Klein charts are available at http://invest.kleinnet.com/bmw1/xref.html These stocks must have a minimum of 16 years of price data and a minimum of $1B market CAP. For stocks that don’t meet these minimums I use other charting sites. I’m not a “chartist.” I ignore most of the so called “technical indicators.” I’m looking more at the picture: is it smooth or volatile? Does it have gaps? What growth rates does it show? (the slope of the tangent of the straight line fitted to the semi-log chart). For shorter term trading I do use volume and support and resistance levels.
I have been fascinated by the Science of Complexity. Classical economists pretend to use physics as their model of the economy. Doesn’t work. The economy and markets are emergent properties of complex systems best studies by the methods of biology, of the Science of Complexity. “Agents,” buyers and sellers, are living creatures best understood via biology. This is an oversimplification meant only as an illustration of where I’m coming from.
What I have been studying for quite some time is the systemic nature of markets, why wealth has a Pareto distribution and other rules (so as not to call them laws) that govern markets and stocks. You can gather enough information from price histories to increase your odds of making a profit.
My though process goes like this:
1.- Do I like the business? If not, find another
2.- I like the business, what will keep me from buying?
The second point is addressed by both fundamental and technical analysis. Too much debt? Skip it. No growth? Skip it. Weird price chart? Skip it. Etc.
Mattel, http://invest.kleinnet.com/bmw1/stats30/MAT.html Average growth rate around 9%, buy only on deep discount.
Priceline, http://invest.kleinnet.com/bmw1/stats16/PCLN.html Fantastic and steady growth. Buy at any time
Southwest airlines, http://invest.kleinnet.com/bmw1/stats30/LUV.html Avoid most of the time.
CISCO, http://invest.kleinnet.com/bmw1/stats25/CSCO.html Well past its prime, forgetaboutit!
Microsoft, http://invest.kleinnet.com/bmw1/stats25/MSFT.html Well past its prime, forgetaboutit!
Apple, http://invest.kleinnet.com/bmw1/stats20/AAPL.html How can the largest market CAP company in the world grow at over 30% Only micro CAPs can do that!
The difference between CSCO, MSFT and AAPL is very interesting. CSCO and MSFT are technology providers whose glory days ended after Y2K. Once the technology was widely accepted it became commoditized and it no longer was a great driver of growth. How is Apple different? They dropped “Computer” from their name for good reason. Apple is not a high tech provider but a high tech user that makes consumer electronics. This difference should not be lost on an IT type of guy.
Denny Schlesinger
8 Likes
Brittlerock
http://seekingalpha.com/article/2919246-lannett-has-a-bright…
The seeking alpha link above is to a long thesis, but in the comments section, there is a bit of discussion about price fixing allegations, and some links to a congressional hearing on price fixing.
IndyPEG- “The best I can discern is that one hearing in Congress took place in November, 2014. Results unknown, but it sounds like more to come. There is also an apparent multi-state investigation that originated in Vermont. You can find several links, but some of them conflict with each other. These two seem informative; the Pharmacy Times piece especially so. I hope LCI can get through unscathed. They seem so well managed; hope this run hasn’t been too good to be true…"
http://bit.ly/1CCnLB1
http://bit.ly/1CCnLRe
Respectfully,
Drake54
1 Like
Drake -
Wow! Thanks a lot. At this point all my interest in Lannett is on hold. They might be totally innocent of wrong-doing, but I’ll wait it out to see how things unfold. I wouldn’t touch LL at present for the same reasons. I know our laws say innocent until proven guilty, but investing is a legal practice.
Denny,
Thanks for posting part of you thought process. It’s learning to say “forgetaboutit” that really counts when the "next great growth stock’ comes into view.
Holding certain standards; e.g. debt limit, PEG, P/sales, CR etc. – allows me to invest more confidently rather than responding to media “hype” (including MF, which does bring up some great ideas). It is also important to hear the contrary news prior to making an investment.
And despite the great curves, if a company doesn’t meet your standards then “forgetaboutit” because there is always another company with a great curve that will meet your standards.
My struggle has been learning to say “forgetaboutit” if the company that meets all my other standards but does not contribute to portfiolio diversification. If it looks too good to pass up, I must decrease my other holdings in the same sector, to keep it balanced.
My 2 cents
Newmsa
1 Like
Thanks Newmsa!
One of the biggest mistakes investors make is that we are not discriminating enough when buying stocks.
Denny Schlesinger
1 Like