Harold,
Nothing like a nice, easy question, right? Well I'll take a shot, anyhow. My answer is long, so I'll take a few posts. (If you are impatient, where I come out is that if you are very confident in BGEN's fundamentals and aren't too risk averse, you should buy more, but should probably hedge your position against some other stocks).
There are really two separate (but related) questions. The first (and harder) is "Is this stock good value in absolute terms?" and the second is "Is this stock good value in relative terms?" By "good value" I mean some sort of risk-adjusted valuation and by "relative terms" I mean in comparison with some other set of identifiable stocks.
The way I look at it, there are really three factors that go into determining a stock price. The first is the fundamentals of the company, the second is peoples' perceptions of these fundamentals, and the third is what the market will pay for a stock with given perceived fundamentals (call this "market attitude" for want of a better term).
BGEN is currently off 20% from last month's high. I don't believe there has been much change in either of the first two factors - all that has changed is market attitude - how much the market will pay for a BGEN-type stock. BGEN is also over double what it was a year ago. I would say this move is about half each changed (improved)fundamentals and changed (also improved) market attitude.
Now biotechs (particularly early-stage biotechs) can have a huge gap between fundamentals and market perception of these fundamentals. I don't think this is particularly the case with Biogen, given its current fairly high valuation. Clearly the market has priced it assuming it is going to continue to perform fairly well.
To be continued ...
Peter |
