Valeant: Damaged Goods or Deeply Discounted Drug Company?
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- Опубліковано 22 бер 2017
- I first valued Valeant in November 2015, after its fall from grace, and concluded that it was not a good investment then, but I did return to it in April 2016 and November 2016, and each time, found it under valued & bought the stock. In March 2017, my investment in the stock has lost 50% of its value. Part of me wants to go into denial (and not look at the stock), part of me wants to sell and never talk about it but I know that for my investment health, I need to take a look at the company and reassess whether it belongs in my portfolio at today's price. I attempt to do so, though it entirely possible that I am letting my delusions get the better of my good sense.
Slides: www.stern.nyu.edu/~adamodar/pd...
Blog Post:
Valuation: www.stern.nyu.edu/~adamodar/pc...
lot's of respect for your honesty. you are an outstanding teacher and i've learned a lot from this.
Have been waiting for your thoughts, thanks a lot Professor
I know this video is a bit old, but love analysis & glad you got it right! Keep them coming!
amazing analysis.. keep them coming!
I appreciate your candor and you giving us the opportunity to see your thought process unfold over time. This one may not work out but I think it's helpful to see your logic and I can't argue with your assumptions. The IRS wash sale rule is only for 30 days so you could sell to take the losses and then rebuy however you'd miss and upside while you're out and have to pay an extra set of trading commissions.
Aswath, you found a cigar butt, long time since one of those has popped up! Thanks for the interesting chat!
I thank you for being honest here. Unlike most investors. I have long-term faith in the stock.
Doesn't the wash sale rule allow a repurchase after 30 days? Do you believe the stock will materially jump in the next 30 days?
@Aswath. Can you do another update on Valeant?
Do you still own Valeant? I'm still very bullish on the long term prospects. Thank you for sharing this video. It was very helpful!
The file with slides is missing.Can you please attach the file?
Did you reconcile/adjust your valuation assumptions to match the stock price in your initial analysis?
Even the best investors make mistakes. Check out Citron research. They did a piece on Valeant last year. Valuation models do not work for fraudulent businesses.
How about now?? Seems to be headed to the mid 20s
I feel bad. But I did tell u not to double down on this one. Hope it turns around for you. You could sell options on it for premium-make some money on it. Or short it via puts or direct shorting.
It's a pity they have some very good product.
My initial analysis? As in November 2015?
Yes, making the changes in the analysis to match the price and then reviewing the probability the market is correct in its assumptions. I bought in June and had a chance to sell/profit on a bounce now it appears the stock is broken and investors are not going to reward it even if there is good news. My worse investments are based on my own analysis.
@@bobcraft9597 honest you are....
Professor,
How is VRX able to have negative revenue growth, with stable margins... then, in another phase, higher growth with increased/increasing margins? Is there fixed cost absorption/operating leverage, or is there not? If you're suggesting Valeant will be able to cut OpEx while revenues are declining, I do not think that is a prudent assumption.
Next, and most importantly, you must review Valeant's old business model.
Valeant capitalized its R&D through acquisitions, instead of expensing it. Of course, the drugs that they acquired had finite-lives due to patents/exclusivities. The "run-off" of those intangible assets is captured through amortization of FINITE-LIVED INTANGIBLES. Even in your updated model, your R&D assumptions are way too low. Valeant is a melting ice cube since it cannot invest what is necessary to maintain its asset base in R&D, or through acquisitions. ~30B in debt, and some other long-term liabilities (DTL) are the reason for this.
Review the financials of Allergan Inc. (not Plc, so the entity that filed with the SEC before Actavis acquired it), and other companies that are more R&D intensive. Review the balance sheet (intangibles, goodwill, etc.), cash flow statement and P&L. To maintain the free cash flow profile of a business in the pharmaceutical world comes down to R&D. You can do it internally (expense it), or you can acquire businesses (capitalize it). With roll-ups, the income statement gives you more insight to how well the business is doing since the amortization is expensed, not the cash flow statement. Valeant's P&L is a disaster.
Again, Valeant is a melting ice cube. What you are doing is the equivalent of valuing an E&P company with an "EBITDA" multiple - completely ignoring the decline rates of assets and the CapEx necessary to maintain the asset base.
Regards
Registered User Great points
Patent Cliff not in your analysis. Get out its toxic