JXM Case Study
Company: Ligand Pharmaceuticals – LGND
Run Date: 3/24/16
Ligand Pharmaceuticals is a biopharmaceutical company based out of San Diego, California that develops programs through a portfolio of assorted strategies and properties in the pharmaceutical industry.
LGND was selected for our case study because it has been a JXM favorite for years, posting better and better scores while its stock price continued to grow. In this particular run, conducted on March 24th, 2016, LGND shined bright against some very tough competition. LGND made it through the JXM 75 pre-screener as a high scorer, with a 4th overall rank and continued with a strong performance in the JXM 24 screener, landing 6th versus its peers. The company also made it through JXM’s toughest secondary screener that isolates companies with superior Sum5, sum7, Technical, Guru, and Rules scores. This selection criteria weeds out even the best companies and yields a success rate between 52% and 100% depending on how long the stock is held (from 5 to 90 days).
JXM Report – The Basics
The following table (Figure 1) is a score card for LGND from the March JXM stock report. The table summarizes its JXM individual scores and ranks, along with the Sum5 and Sum7 scores of its top competitors.
LGND boasts very strong JXM scores with a dominating performance across the board. It displays a near perfect score in Valuation along with solid Fundamental, Technical, Guru, Rules, and Classic Growth. Further, it had the top Sum5 score and a highly competitive Sum7 score. The only negative is the very poor New Growth score, which is not highly correlated in the Healthcare field.
JXM Report – The Heart
The follow table (Figure 2) summarizes the heart of the JXM database, with highlights of levels 1-6. Again, dominance of LGND shows throughout.
The outstanding fundamental score of LGND is backed by its well rounded overall scores. It dominates against its run competitors (strong basic, target, and key statistics) as well as against its industry and overall sector. Share statistics show some weakness but this is overcome by its uniform strength in financial and management health, as well as its profitbaility and valuation.
LGND leads the pack with its technical score, sitting nicely above its 20 and 200 sma. However, there are some warning signs amongs this gold, with a long term hold rating and a bearish RSI. Its rapid growth over the last year warrants some concern as well.
LGND also leads its 24 competitors in valuation. In nearly every, aspect it shows potential for stock growth, with a whopping 721% margin of safety. The only warning flag is its buy recommendation which is only 2.4 which keeps it from winning a perfect score.
The guru score for LGND is middle of the pack, but still a solid 45%.
LGND also places a solid 8th rank in rules, with solid pre-tax margins, a superior return on equity, and strong cash flow to go along with low institutional ownership. However, the company posts lower revenue then it did the previous year and an uninspiring dept to equity ratio.
The growth score for LGND also is the top of its class. Its yearly growth section is dominant, will all measures posting strong growth. Its quarterly growth is also solid, though there is a drop off in earnings, which could raise a red flag going forward.
The March LGND run and healthcare in general was extremely strong, with LGND, ABMD, TECH and ALGN all able to emerge from JXM’s toughest secondary screener. All four companies had very strong price performance after the run. The following table (Figure 3) is a summary these results measured at 5, 10, 15, 30, 45, 60, 75, and 90 day intervals starting from the date of the run.
As can be seen from this run, all four companies posted strong price movement, with only TECH displaying short-term price weakness.
The following chart (Figure 4) show the stock priced versus the S&P 500, with a circle marking the stock run date.
As can be seen from Figure 4, LGND experienced rapid growth through late April of 2016 and dominated the S&P 500. However, it did drop off after that and was relatively flat for the next two months. The stock reported its earnings in early May of 2016, which highlights a common requirement of JXM, to reevaluate a stock after its earnings report to search for any score drops or other warning signs. In this case, a max gain of 27% after 30 days was eroded through the next 60 days, the majority of which came after its May earnings report.
By nearly any measure, LGND was a very strong stock as measured by the March 2016 stock analysis. It posted well rounded strength in all JXM categories, from financial health, to technical strength, thru valuation. Those that purchased would not be disappointed. However, there were warning signs that alerted the JXM team of potential risks such as weak long-term hold prospects along with a downward trend in earnings. Such concerns advocated a closer look as the company approached its earnings report; warnings that could have protected nearly all of the 27% top gains.
In the coming days, we will investigate the three competitors in this run that also made it through our toughest secondary screener, TECH, AMGN, and ALGN.