(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of ACAD.)
Acadia Pharmaceuticals Inc.'s (ACAD) stock price could be set to double as analysts forecast soaring revenue in the near future. Shares have fallen on tough times recently, down by nearly 33 percent over the past 52 weeks. But analysts expect revenue to quintuple over the next three years due to soaring projected sales of Acadia's lead drug Nuplazid, which treats Parkinson's disease psychosis.
The jump in sales could help push shares higher, and has resulted in the average price target on ACAD stock rising by nearly 15 percent over the last year. (See also: Biotech Acadia Nears Major Breakout as Sales Ramp Up.)
Every time Acadia's stock has had some momentum behind it, it stumbles on a setback. The most recent setback came after the company reported fourth-quarter revenue that missed analysts estimates by 3.5 percent. But despite the miss, the company issued strong guidance for 2018, and that has prompted analysts to raise forecasts for 2018 to $263 million.
A Rise To $50
Analysts have been steadily increasing their price targets on Acadia over the past 52 weeks, with the average price target currently at just over $50, an increase of 103 percent. Of the nine analysts that cover the stock, 89 percent have a "buy" or "outperform" rating on it, while only 11 percent have a "hold" rating, according to data from YCharts.
The optimism comes as analysts see revenue rising from $124.9 million in 2017 to $838.4 million in 2020 – a spike of 571 percent. Analysts have been steadily increasing sales estimates over the past year. In November, revenue estimates for 2018 stood at only $226 million, and have since increased to $263 million – a rise of 16 percent. 2019 views have risen by about 4 percent since November to approximately $443 million.
Turning A Profit
The tough part for Acadia will be converting the big sales expectations into actual profits. For now, analysts are projecting Acadia to lose $1.84 per share in 2018, but that loss is expected to shrink in 2019 to $0.57 per share. That's a dramatic turnaround since November, when analysts had projected a loss of $1.98 per share in 2018, and a loss of $1.13 in 2019.
For 2020, analysts expect Acadia to turn profitable, earning $1.78 per share. (See also: 5 Biotechs That May Surge On Takeovers.)
The poor performance of Acadia's stock suggests investors are concerned that analysts' bullish estimates may not come to fruition. But if the company can deliver, the payoff could be significant at some point in the future.
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.