(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of CELG.)
Biogen Inc. (BIIB) shares have plunged by nearly 23 percent since January 26, falling to $283 per share. But signs are emerging that a reversal might be in order over the short term based on an analysis of the stock's trading pattern. The current setup in the chart suggests the biotech company may climb by as much as 14 percent. But the longer-term growth prospects for Biogen are muted, with analysts only expecting growth of 5.7 percent.
The stock is also among the cheapest of the big biotech names. Biogen got walloped in February as part of the overall stock market sell-off, but fell even further after the company announced it would be increasing the enrollment size of two late-stage studies for its Alzheimer's drug aducanumab. The increasing enrollment size was seen as a negative indication that perhaps Biogen didn't see positive results coming out of the two studies.
In an Investopedia article on February 5, we noted that Biogen shares could rise, but also pointed to the severe risk that the stock could crumble to $300, a decline of 13 percent at the time. (See more: Why Biogen's Stock May Rebound Amid Market Slump.)
With the stock now trading at $283, it now rests on a critical support level around $281 and on a critical long-term uptrend. To this point, this support region has held steady, while volume has been higher than the 90-day moving average, another positive indicator. Should Biogen fail and not hold support at $281, it has the potential to fall another 11 percent to $250.
Biogen's relative strength index (RSI) is also trading at oversold levels around 30. The past two times that the stock has hit such levels, the shares went on to rally over the short-term, in June of 2016 and May of 2017.
Additionally, the RSI has been trending higher while the stock has remained flat, and that could be a bullish divergence indicator. (See also: What Does it Mean to Use Technical Divergence?)
Biogen currently trades at 10.8 times 2019 earning estimates of $26.19 per share, and that makes only Celgene Corp. (CELG) cheaper out of the big four biotechs, including Gilead Sciences Inc. (GILD) and Amgen Inc. (AMGN).
BIIB PE Ratio (Forward 1y) data by YCharts
Like the other big biotechs, the growth outlook for Biogen falls flat. And that is likely the driving force behind the direction of the stock over the longer-term, with analysts forecasting only 5.7 percent revenue growth in 2018, 3 percent growth in 2019, and 3.4 percent growth in 2020.
Meanwhile, the company's longer-term drug pipeline still has shortfalls.
BIIB Annual Revenue Estimates data by YCharts
For now, the technicals are pointing to a stock that can rise over the short-term, but the longer-term picture for Biogen remains a little murky.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.