The US stock market is facing a bumpy ride as it grapples with the persistent stress in the banking sector, compounded by the heightened fear over the US debt ceiling. The market turbulence is further fueled by concerns over high consumer inflation, which despite cooling off from its peak in June, remains above the Federal Reserve's target.
Given the uncertainty, it is crucial to monitor your portfolio's health. Therefore, Avid Bioservices, Inc. (CDMO), which is currently trading below its 50-day and 200-day moving averages, could be best avoided, and in this article, I will explain why.
The stock declined 3.1% intraday to close the last trading session at $18.
Here’s what could shape CDMO’s performance in the near term:
Weak Financials
CDMO’s total operating expenses rose 22.2% year-over-year to $7.11 million for the fiscal third quarter that ended January 31, 2023. The increase was primarily due to increases in compensation and benefits, legal, accounting, and other professional expenses.
Its operating income dropped by 16.9% from the prior-year quarter to $2.72 million. Its adjusted net income declined 21.5% year-over-year to $4.28 million. Also, its EPS decreased 300% from the prior-year quarter to $0.01.
Bleak EPS Growth Expectation
Analysts expect CDMO’s EPS to decline 44.7% year-over-year to $0.19 in the fiscal year 2023. Its EPS for the fiscal fourth quarter ending April 2023 is expected to decrease 75.2% from the previous-year quarter to $0.02.
Stretched Valuations
In terms of forward non-GAAP PEG, CDMO is currently trading at 6.32x, which is 203% higher than the industry average of 2.08x. Its forward P/S multiple of 7.59 is 87.4% higher than the industry average of 4.05.
Its forward EV/Sales multiple of 8.41x is also 132.2% higher than the industry average of 3.62x and its forward P/B of 6.27x is 129.4% higher than the industry average of 2.73x.
POWR Ratings Reflect Bleak Outlook
CDMO has an overall rating of F, translating to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. The stock has a D grade for Value consistent with its premium valuation.
Its D grade in Growth is in sync with its weak performance in the latest quarter. Its 24-month beta of 1.91 justifies its D grade in Stability.
CDMO is ranked last among 164 stocks in the D-rated Medical - Pharmaceuticals industry.
Click here to access CDMO’s Sentiment, Momentum, and Quality grades.
Bottom Line
CDMO is trading below its 50-day and 200-day moving averages of $17.74 and $16.89, respectively, suggesting a downtrend.
The company's recent financial performance, including declining income and bleak EPS prospects, as well as its stretched valuations and high beta value, suggest a gloomy outlook.
So, it might be best to avoid investing in CDMO now.
Stocks to Consider Instead of Avid Bioservices, Inc. (CDMO)
Unfortunately, the odds of CDMO outperforming in the weeks and months ahead are significantly compromised. However, many good stocks in the Medical- Pharmaceuticals industry have impressive POWR Ratings. So, consider these three A-rated (Strong Buy) stocks instead:
Novartis AG ADR (NVS)
Novo Nordisk A/S ADR (NVO)
Takeda Pharmaceutical Co. Ltd. ADR (TAK)
The Bear Market is NOT Over…
That is why you need to discover this timely presentation with a trading plan and top picks from 40 year investment veteran Steve Reitmeister:
REVISED: 2023 Stock Market Outlook >
CDMO shares were trading at $17.92 per share on Thursday morning, down $0.08 (-0.44%). Year-to-date, CDMO has gained 30.14%, versus a 6.97% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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