Joshua  Harris profile image JMH18

Joshua Harris

$4.04
UNITED STATES
4/04/08
$1,000,000.00

55
01/04/17
-167.9%
-
Send Message

Stock Pick by Joshua Harris

LCI: LCI trades from $48.57 to an adjusted $216.72

Start trading LCI with real money!

Rate Analysis
star star star star star
0 ratings
Posted 515 days ago on 8/21/15

LCI will go UP
$216.72 on 8/21/15
$22.00 (-62.91% from time of market call)

As of 8/21/2015 Lannet Company Inc., which trades with the ticker "LCI" on the NASD is the #1 small cap GARP or growth at a reasonable price stock with a P/E below 15. LCI is in the health care sector and the generic drug sector. It is a USA based company. The P/E (TTM) on 8/21/2015 is $13.19 and 14 day RSI is 24.34. In other words, out of all the 7,046 equities in the screener available on finviz.com, which is one of the most versatile free stock screeners out there, based on my research, I consider LCI the best investment currently available. GARP criterion covers fundamental analysis. The books are very attractive for LCI with positive and attractive numbers for return on equity, sales revenue growth, gross margins, cash to debt, cash to shares outstanding, price to book, price to sales, earnings per share growth, price to earnings growth, price to cash , price to free cash flow, long term debt to equity and debt to equity. That's all well and good but the factor that moves the price of stocks up or down the most is earnings and the year over year earnings for LCI have been growing at an exponential rate of 56.65% for the past 6 years. That should translate into a stock price with an attractive adjusted growth rate; this is also the case here. The compound annual growth rate or CAGR for LCI over the past five years has been 64.63% a year. This beats the S&P 500 which currently has a compound annual growth rate of approximately 16% over the past 5 years. In addition the variance of the adjusted stock price of LCI has been very low (low risk) during the past 5 years with an exponential R2 value of 0.8350. What is exponential R2? It's a variance or volatility of the adjusted stock price calculation. Think of an adjusted stock price chart in MS Excel with a correlation trend line superimposed over it. This trend line is not linear but like stock prices over time, is exponential so it curves up slowly in the best fit to go through the most price data. Exponential R2 is a better measure of risk than linear because I want to see how well a stock price fits an exponential growth pattern over time, not linear, so that is the trend line I use. I want to own stocks that grow exponentially, not linear or flat?. LCI certainly has had low volatility, exponential growth over time as the adjusted 5 year stock price chart clearly shows. LCI is a small cap stock with a market cap of $1.78 billion. Being a small cap stock, in the same time (say 5 years) it would take a large cap to increase 50%, a small cap can increase 1,400% : See Lululemon "LULU" for an example of this. No promises that LCI can grow at this rate but it certainly presents room to grow at a healthy clip for the foreseeable future. In addition, private equity firms and natural larger buyers see what I see and therefore it is not uncommon for a company like LCI to be acquired for a handsome premium in an M&A deal at this growth rate and these nice financial levels. I wouldn't hold my breath for an M&A deal but if it happened I would not be surprised. Some negative notes: The market is overvalued at this point. I would almost not be interested in buying any equity at this date with the Shiller CAPE ratio at 26 which is a back of the envelope calculation to determine if the stock market is over or undervalued based on a trailing 10 year median P/E ratio for the S&P 500. A value of 20 or greater is considered historically expensive and with a current value of 27.10, well you know? that's quite a mark up. Then we have the Buffet Ratio which has a valuation of total market cap over GDP at 118.50%. This is historically high and if you sliced the levels into five tranches you have the market currently at the most expensive tranche so it is significantly overvalued at this point. The price of crude oil is cheap and the dollar is expensive. The Fed will be increasing interest rates from basically 0% to some say as high as 3.5% over the next two years. All these factors together are creating the perfect storm for a recession but recessions only last so long and my outlook for holding equities is 5 years. Even in the perfect storm you want to hold some percentage of stocks. It's a tough environment for stock picking for sure but if I had to pick a pony to win the race, and beat the market I would have to go with LCI at this time. Ok, so if after reading all the above, you are still ok with the prospects of LCI then let's run the predictions. With a current price of $48.57 on 8/21/2015 and a CAGR of 56.65%, I expect LCI to be trading at an adjusted price of $216.72 in 3 years time on 8/21/2018 and an adjusted price of $587.37 in 5 years time on 8/21/2020. Time will tell? Happy Investing!

Add a Comment

Comments

No results found
Subscribe to Stock Analyses Comments feed:



Make a suggestion for this page