Aceto (ACET) - Therapeutical Pharmaceutical for your Portfolio?
It's been over 3 weeks since the last blog update which precisely pegged the market top which subsequently saw a 12% correction - "The Stock Market has reached a permanently high Plateau".
It is difficult to predict where the market is headed next, as the Dow ($INDU) has retraced back to its 20 daily moving average and volatility indexes are starting to crash down again. Will this result in a march higher into March or set the scenario for a bear trap? It's anyone's guess, but this provides a little breathing room to post on the next company to highlight - Aceto.
When I think of obscure, unobtrusive and boring companies, to me Aceto fits that label perfectly.
The company website appears dull, stale and uninviting as if it were born in the early 2000s, though the ‘terms of use’ has a copyright date of 2010. Despite lackluster marketing/web design and the to-be-described dismal stock performance, I find Aceto very interesting from a valuation perspective.
Stock Performance
A series of earnings misses and lowered guidance over the course of the past 18 months has driven the stock down from the mid-$20s to a 52-week low of $6.99. ACET closed the Friday 2/23/18 session at $7.54 up 4.58%. The short ratio ranges between 4.0 to 4.5 and has not played much of a role in Aceto’s poor stock performance.
Drug manufactures – specialty and generic, as a group, was also out-of-favor during the same period. Longer term historical performance is much more favorable than the most recent 2-3 years.
Current status and financial analysis
Management cited pricing pressure on generic products as a current financial headwind without relief throughout 2018. Many investors have sold after reassessing long-term profitability expectations. However, it may be time the thrashing ceases.
There are some key investment criteria when combined make a case for a closer look.
- Price to book is .56 and Debt to Equity .79.
- Forward P/E is 7 with a PEG ratio of .71.
- Price to Sales .34
- Sales growth contributed 8% annually for the past 3 years.
- Current ratio is 2.00, operating and free cash flow are both near $70m.
- With a dividend yield of 3.61%, you’ll get paid to wait.
Something that bothers me a little is that Aceto has roughly $500m combined of goodwill and intangibles on the balance sheet with Net Tangible Assets ($100m+). This should get worked out over time, but is an eyesore to an otherwise clean balance sheet.
In the very near term, from a technical perspective, the stock is facing a MACD crossover, which could help it retrace some its drop from the $11 range.
Aceto has potential to fall further, but I would see that as even a better opportunity to invest at lower prices, given no serious further degradation in operating performance occurs.
Company Profile
Employee Count: 286
Aceto Corp is engaged in the marketing, sells and distribution of finished dosage form generic pharmaceuticals, nutraceutical products, pharmaceutical active ingredients and intermediates, and specialty performance chemicals.