Annual Review — Tech Speculations

Continuing our annual review with check-ins on Ligand, Invensense,, Rosetta Stone, and Aware, Inc.

By Travis Johnson, Stock Gumshoe, January 17, 2014

Some more stocks from our list of speculative ideas to run through today, let’s jump right in with a look at Ligand Pharmaceuticals (LGND) and Invensense (INVN), two of the faster-growing stocks I’ve covered that are seeing rapid change, and do a quick check-in on some other tech-related stocks in our speculation list that haven’t changed as much since my last writing:

Ligand Pharmaceuticals (LGND) — Hold or buy little nibbles, look for pullbacks.

This is a stock I’ve had to continuously re-evaluate because it’s growing so very fast, just about doubling in the six months since we covered it and I bought shares. I did sell covered calls against the stock when it was heating up very fast in November or December and reinvest the proceeds from those covered calls, and do a bit of nibbling along the way, but otherwise I’ve just been watching and wishing it would dip more substantially. It’s tough to buy in the mid-$60s if you remember it being in the $20s and $30s, but the past doesn’t help us on that front — is the price justifiable today?

The numbers are ridiculous — it’s trading at well over 100X trailing earnings, with a forward PE of about 50 based on expected 2014 earnings. Revenues doubled in the last quarter,and they’ve blown out analyst earnings estimates by 70%, 40%, and 70% in the last three quarters, but they’re also trading at almost 30X sales. Ligand is a royalty company in the pharmaceuticals space, with a combination of drugs they developed and drugs they’ve bought in and drugs that are being developed based on their Captisol delivery platform, which bring in royalties and material sales revenue. Their goal is to have a large number of compounds in development (they call them “shots on goal”) and not to pay for the development themselves, so a partner like GlaxoSmithKline or Pfizer partners in with them, runs and pays for the clinical trials, and Ligand earns milestone payments as drugs pass various checkpoints, then a royalty based on the sales of the drug if and when it’s approved.

This is a relatively new business model for them, they used to be a money-blowing biotech like so many others but are now very, very focused on costs and distributing risks. Margins are extraordinarily high for a pharmaceutical company, which is what you would expect ...

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