A Fast Growing HealthCare Stock for Your Porfolio

Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Questcor Pharmaceuticals (NASDAQ: QCOR), the darling of the stock market in 2010 and 2011 has plunged significantly in the middle of 2012. Year-to-date, Questcor has lost more than 35% of its market value, to the current share price of $25.66 per share. Interestingly, the insiders have been accumulating its shares since the beginning of November this year at the average price of $24 per share, after the series of significant sells at around $35 - $53 per share since the beginning of this year. I personally would think at the current price, Questcor represents a good value for patient investors.

With its main product, H.P. Acthar Gel to treat 19 indications, Questcor is helping patients who have serious medical conditions such as rheumatic disorders, multiple sclerosis, collagen diseases, infantile spasms, and nephrotic syndrome. In the US, its Acthar product is sold to exclusive customer, CuraScript SD, and then resold to around 12 specialty pharmacies and children’s hospitals. The other company’s product, Doral, the insomnia treatment, is sold to pharmaceutical wholesalers.

The plunge in its stock price came in September when the reimbursement coverage for Acthar would be limited by the insurer Aetna (NYSE: AET), the third biggest U.S. health insurer. The insurer pointed out that Acthar is “medical necessary” only for West syndrome, the cause of infantile spasms. However, in the statement released by Questcor, Aetna only accounted for 5% of total Questcor’s prescriptions. Thus, Questcor didn’t think that would have a material impact on the company. Don Bailey, Questcor’s CEO commented:

It’s clear that Aetna needs to receive some additional information from us. You could tell with the various information they put out that they did not have a complete understanding of Acthar.”

On the fundamental side, Questcor seems to be quite interesting. Since 2008, it has managed to deliver a significant high return on invested capital. Trailing twelve months, the ROIC was as high as 113.47%, along with the net margin of nearly 39.5%. As of September, it held $122 million in stockholders’ equity and $112 million in cash and short-term investments. Especially, Questcor remains a debt-free company. In October this year, it just paid out its first dividend, of around $0.20 to shareholders, creating a yield of more than 3.1%.

Questcor seems to be the smallest, fastest growing and the most attractive compared to its other peers including Novartis AG (NYSE: NVS) and Sanofi SA (NYSE: SNY).

<table> <tbody> <tr> <td> <p> </p> </td> <td> <p><strong>QCOR</strong></p> </td> <td> <p><strong>NVS</strong></p> </td> <td> <p><strong>SNY</strong></p> </td> </tr> <tr> <td> <p><strong>Net margin (%)</strong></p> </td> <td> <p>39.5</p> </td> <td> <p>15</p> </td> <td> <p>16.2</p> </td> </tr> <tr> <td> <p><strong>ROIC (%)</strong></p> </td> <td> <p>113.5</p> </td> <td> <p>9.7</p> </td> <td> <p>8.56</p> </td> </tr> <tr> <td> <p><strong>D/E</strong></p> </td> <td> <p>0</p> </td> <td> <p>0.2</p> </td> <td> <p>0.2</p> </td> </tr> <tr> <td> <p><strong>Forward P/E</strong></p> </td> <td> <p>7.2</p> </td> <td> <p>11.9</p> </td> <td> <p>6.7</p> </td> </tr> <tr> <td> <p><strong><span><span><span>Div</span></span></span> yield (%)</strong></p> </td> <td> <p>3.1</p> </td> <td> <p>4</p> </td> <td> <p>3.8</p> </td> </tr> </tbody> </table>

Questcor has the potential to deliver superior returns compared to the other two peers, with its nearly three times higher net margin and ten times higher ROIC. It also employs no leverage at all. Even though its dividend yield is the lowest among the three, the growth potential is remarkable. The forward P/E of Questcor is lower than Sanofi, but its PEG ratio is only 0.2x, much lower than those of Novartis, of 7.9x and Sanofi, of 9.3x.

As Fool contributor, Keith Speights pointed out, the company simply has been raising prices for its Acthar since 2007, from $2,000 to nearly $30,000 per vial, indicating its nice and neat ability to charge higher prices. It is even more intriguing when the insiders confirm its bullish momentum for the stock as indicated above. The CTO and CBO have accumulated around $1.5 million worth of shares since the beginning of November.

Foolish Bottom Line

At the current price, Questcor offers quite an attractive investment opportunity for investors, with its potential growth, cheap valuation, nice dividend yield and insider buys. At the moment, investors could consider Questcor to be a long term stock for their diversified portfolios. 

hoangquocanh has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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