PDLI trades to 4.27 in 3 years time on 8.15.2019
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Posted 224 days ago on 8/15/16
PDLI will go UP
$4.27 on 8/15/16
$2.10 (-25.53% from time of market call)
My numbe 1 Margin of Safety and or Ben Graham stock pick on 8.15.2016 is PDL BioPharma, Inc. with the ticker PDLI which trades on the NASD. It is a US based company in the healthcare sector and the biotechnology industry that was founded in 1986. It has a market cap of 486.69 million dollars so it is considered a small cap company. They were a pioneer in humanizing monoclonal antibodies. They own and manage an portfolio of patents and royalty assets involved in the treatment of cancer and immunologic diseases. It currently trades at a 90.08 percent discount to the margin of safety price of 28.34 dollars per share. In other words, you can buy this company right now for 10 cents on the dollar.
Things I like, The company is dirt cheap given that margin of safety number. YoY CAGR on earnings over the past 10 years is approximately 17.65 percent with an exponential R2 on that rate of 0.8538. This company has solid growing earnings. A good CFO or accountant may massage the earnings numbers at will so you would have to check that free cash flow per share is growing as well It is growing at a rate of 8.01 percent with an exponential R2 on that growth rate of 0.1745 over that same trailing 10 year period so the earnings have some degree of validity.
The gross margins for PDLI are very impressive. The gross margins seem to be at or near 100 percent for the past 10 years. If you combine that with selling, general and administrative expenses decreasing at a rate of -15.93 percent CAGR over the past 10 years, we have a very tight ship here. They operate a lean and mean structure that gets more efficient over time and they pay a quarterly dividend with a yield of 6.12 percent.
Some good valuation stats: The current ratio is 14.20. Price to earnings growth or PEG ratio is 0.14. The price to book is 0.63. The ROE over the past year is 33.02 percent. The ROA is 22.20 percent. Price to cash is 4.20. the growth in sales over the past 5 years has increased 11.30 percent. Long term debt to equity is 0.32 while the debt to equity is also 0.32. Cash to shares is 4.05 where I look for that number to be over 3.
Things I don't like No company is perfect so let us consider the negatives of PDLI. There was a 5 year streak between 2008 - 2012 where the company's book value per share, and return on equity took a hit but these items have since recovered. The dividend was larger in the past but has been cut due to some patents coming off line. I'm willing to accept these negatives given the deep discount to the margin of safety price the company trades at and the steady year over year earnings that appear to have validity given free cash flow per share over that same 10 year time period.
Now back to the good stuff: At a current price of 2.81 dollars and 10 year CAGR of earnings per share of 17.65 percent, with a price to equity ratio of 2.03 and a dividend yield of 7.04 percent and given the substantial discount to margin of safety, it would appear that PDLI can grow into its earnings at an unencumbered rate of 15 percent a year. At this rate I would expect PDLI to trade at an adjusted price of 4.27 dollars per share in 3 years time on 8.15.2019 and an adjusted price of 5.65 dollars per share in 5 years time on 8.15.2021. Time will tell.
Hey Shawn, thanks for the comment. Great minds think alike, haha! I
consider myself a value investor. What kind of style do you
identify with? If you consider yourself a value investor, do you
recommend any value investing books that you've read?