With shares of Vivus (NASDAQ:VVUS) trading around $13, is VVUS 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
Vivus is a biopharmaceutical company. It commercializes and develops therapies to address unmet needs in obesity, sleep apnea, diabetes, and sexual health. Its drug, Qsymia was approved by the the United States Food and Drug Administration for the treatment of obesity as an adjunct to a reduced-calorie diet and increased physical activity for chronic weight management in obese adult patients or in the presence of hypertension, type 2 diabetes, or high cholesterol. The issues that Vivus is looking to treat are growing concerns among Americans. Should the drugs produced work effectively, Vivus is poised to see explosive demand that will surely translate to rising profits for the company.
T = Technicals on the Stock Chart are Weak
Vivus stock has seen its fair share of volatility over the last several years. The stock is now trying to stabilize after huge selling pressure that cut its share price in half. 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, Vivus is trading around its key averages, which signal neutral price action in the near-term.
(Source: Thinkorswim)
Taking a look at the implied volatility (red) and implied volatility skew levels of Vivus options may help determine if investors are bullish, neutral, or bearish.
| Implied Volatility (IV) | 30-Day IV Percentile | 90-Day IV Percentile | |
| Vivus Options | 53.34% | 3% | 2% |
What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts, as compared to the last 30 and 90 trading days.
| Put IV Skew | Call IV Skew | |
| June Options | Steep | Average |
| July Options | Steep | Average |
As of today, there is an average demand from call buyers or sellers and high 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 small 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 Decreasing 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 Vivus’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Vivus 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) | -165% | -337.11% | -300% | -20% |
| Revenue Growth (Y-O-Y) | N/A | N/A | N/A | N/A |
| Earnings Reaction | 9.71% | -12.24% | -20.93% | -4.22% |
Vivus has seen decreasing earnings over the last four quarters. From these figures, the markets have had mixed feelings about Vivus’s recent earnings announcements.
P = Poor Relative Performance Versus Peers and Sector
How has Vivus done relative to its peers, Eli Lilly (NYSE:LLY), GlaxoSmithKline (NYSE:GSK), Pfizer (NYSE:PFE), and sector?
| Vivus | Eli Lilly | GlaxoSmithKline | Pfizer | Sector | |
| Year-to-Date Return | -2.31% | 14.76% | 20.27% | 17.11% | 16.97% |
Vivus has been a relative underperformer, this year to date.
Conclusion
Vivus is a biopharmaceutical company that is attacking issues negatively affecting many Americans. The stock has not done too well lately but may be currently stabilizing from a recent rise in selling. Earnings have been decreasing over the last four quarters, which has not really made investors too happy. Relative to its peers and sector, Vivus has trailed significantly in year-to-date performance. STAY AWAY from Vivus’s stock for now.
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