IS CATALYST PHARMACEUTICALS A BARGAIN STOCK THAT COULD SUPERCHARGE YOUR PORTFOLIO?

With the extreme volatility that the Market has endured during the Covid-19 pandemic, some promising biotech stocks have been ignored while the sector as a whole has leapt to new highs. Securities Analyst Alex Dinklage helps our readers uncover an overlooked Biotech bargain…

It has been a rocky past couple of months in the stock market to put things mildly; the S&P had its worst March drop since the Great Depression. Things have begun to look more positive as the market rallies around the influx of cash from the Fed, erasing many of the loses previously held.  The S&P gained 27% from its low bottom in March; investors are in uncertain times as the market continues to increase simultaneously with unemployment. 

While the market continues to be volatile as uncertainty resides in the air, there are still bargains in the Market waiting for savvy investors to pick up on. One of these extreme bargain stocks is Catalyst Pharmaceuticals (NASDAQ: CPRX). Biotech in general is a pretty safe sector to be investing in at the current time as people are not going to forgo their prescription medicine which makes this sector a necessity for any economy. Additionally, many biotech companies have been playing a critical role in helping slow the spread of COVID-19 by beginning to work and test vaccines and helping to accelerate these developments.  

Catalyst Pharmaceuticals is a biopharmaceutical company that mainly focuses on developing and commercializing therapies for people with rare conditions such as chronic neuromuscular and neurological diseases in the United States. The company’s main drug named “Firdapse” is used to treat rare muscles diseases and has worked extremely well in the past. There has been some criticism in the past on why the drug costs $375,000, which has sparked controversy, but has had very little impact on its annual sales. 

Like most of the market, this small cap rare disease drug maker has been slammed pretty hard recently for little to no good reason, making it an extreme bargain. Catalyst Pharmaceuticals is on pace to bring in $135-150 million in sales in 2020 and has already exceeded expectations by beating its Quarter 1, 2020 earnings. With a market cap of $458.13M and a share price of only $4.31 Catalyst Pharmaceuticals is extremely small in comparison to major players, giving it the potential to see rapid gains once the market gets back on track. Even though Catalyst Pharmaceuticals has a small market cap, it isn’t so small that the price can be manipulated by other firms, making it once again a suitable choice. 

So just because it has a small market cap and an affordable share price, why should you buy it now? At it’s current market cap and share price, the stock is trading at only 2 times 2020 sales which is crazy considering the average for rare-disease companies is 15 times    This means that Catalyst Pharmaceuticals is extremely undervalued. Additionally, with a P/E ratio of 11x this resembles more of an established Big Pharma company, such as Pfizer, and not the small cap-company that it is. The industry average P/E ratio for profitable biotech companies is around 25-40 times their earnings which also shows that Catalyst Pharmaceuticals is an extremely undervalued company and will eventually shoot back upwards where it belongs. 

Besides Catalyst Pharmaceuticals’ P/E ratio, they have very healthy financials, show strong growth potential, and high overall quality. 

Growth Stability:

This is an important assessment in today’s times; we as investors want to make sure that we are putting our hard-earned money into a company that has the potential for stable growth, especially with the volatile markets. With 3,000 people living with LEMS in the U.S, Catalyst is looking to increase the use of Firdapse through its sales efforts and distribution program. Additionally, one upcoming event is a phase 3 trial of Firdapse which, if successful, will expand Firdapse’s use in the near future. Also, Catalyst Pharmaceuticals is waiting on a decision to be able to use Firdapses on patients in Canada which will allow them to expand their user base and increase profits. Also, Catalyst Pharmaceuticals’  Operating Cash Flow Stability, which compares the company’s operating cash flow to its market value, is very healthy at 1.27. This measure is way higher than the sector average of 0.19, showing high financial stability.

Quality:

Looking at Catalyst Pharmaceuticals right now, they are in very good financial health as their assets exceed their liabilities and will have the cash flow to be able to operate for the next year. Additionally, Catalyst Pharmaceuticals has a very strong EBITDA Margin of 36.6% which is their earnings before interest, tax, depreciation and amortization. This is very high especially considering the current industry average is -172.02%. Another extremely important factor to look at is the return on investment (ROI) of a company. Normally, the higher an ROI, the better, as it demonstrates that the company is being effective with investors’ money. Catalyst Pharmaceuticals has an absurd ROI of 50%, showing that their management knows what they are doing and are highly effective with their money. 

High Risk Equals High Reward:

Catalyst Pharmaceuticals looks like an outstanding buy in the current market conditions that could offer a sizable return in the future. While Catalyst Pharmaceuticals does have healthy financials there could be upcoming issues such as legal and regulatory problems that could delay an increase in price or even lower it. Additionally, we are in unprecedented times and this current pandemic could delay or even forgo some of Catalyst’s clinical trials, causing a decrease in profit margins. While no one knows where the market will go in the short run, Catalyst Pharmaceuticals’ long-run prospects make the name a great buy for anyone’s current portfolio.