With shares of Elan (NYSE:ELN) trading around $13, is ELN an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
T = Trends for a Stock’s Movement
Elan is a biotechnology company that is focused on discovering and developing advanced therapies in neurodegenerative and autoimmune diseases. Such diseases include Alzheimer’s Disease, Parkinson’s Disease, Celiac disease, Crohn’s Disease, and Narcolepsy. These diseases really take a toll on the lives that they affect so any positive progress Elan can make may be very rewarding. As many of these diseases come to the attention of people around the world, biotechnology companies such as Elan will see rising demand.
T = Technicals on the Stock Chart are Strong
Elan stock has seen its fair share of volatility over the last several years. The stock is now trading in a ranging extending back to last year and looks comfortable at these prices. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Elan is trading above its rising key averages which signal neutral to bullish price action in the near-term.
(Source: Thinkorswim)
Taking a look at the implied volatility (red) and implied volatility skew levels of Elan options may help determine if investors are bullish, neutral, or bearish.
| Implied Volatility (IV) | 30-Day IV Percentile | 90-Day IV Percentile | |
| Elan Options | 35.46% | 80% | 77% |
What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.
| Put IV Skew | Call IV Skew | |
| July Options | Steep | Average |
| August Options | Steep | Average |
As of today, there is an average demand from call buyers or sellers and higih demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.
On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.
E = Earnings Are Mixed Quarter-Over-Quarter
Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Elan’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Elan look like and more importantly, how did the markets like these numbers?
| 2013 Q1 | 2012 Q4 | 2012 Q3 | 2012 Q2 | |
| Earnings Growth (Y-O-Y) | -20.00% | -452.69% | -133.33% | 37.50% |
| Revenue Growth (Y-O-Y) | 27350% | 13.37% | 9.74% | 6.43% |
| Earnings Reaction | -0.75% | -10.13% | -0.28% | 0.95% |
Elan has seen decreasing earnings and rising revenue figures over the last four quarters. From these numbers, the markets have been disappointed with Elan’s recent earnings announcements.
P = Excellent Relative Performance Versus Peers and Sector
How has Elan stock done relative to its peers, Pfizer (NYSE:PFE), Sanofi (NYSE:SNY), Biogen Idec (NASDAQ:BIIB), and sector?
| Elan | Pfizer | Sanofi | Biogen Idec | Sector | |
| Year-to-Date Return | 32.52% | 15.61% | 16.00% | 41.79% | 27.18% |
Elan has been a relative performance leader, year-to-date.
Conclusion
Elan is a biotechnology company that is looking for ways to improve and better the lives of people with neurodegenerative and autoimmune diseases. The stock has struggled over the last couple of years and looks to be comfortable at these prices. Over the last four quarters, investors in the company have been disappointed as earnings have decreased while revenue figures have increased. Relative to its peers and sector, Elan has been a year-to-date performance leader. WAIT AND SEE what Elan does in coming quarters.
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