Based on the factors that Benjamin Graham considered in analyzing potential stock picks, Lantheus is not a quality investment. Only investors with a high risk tolerance and a solid investment thesis on the stock will be interested in this mid-cap Biotechnology company.
Lantheus Is Probably Overvalued
Graham devised the below equation to give investors a quick way of determining whether a stock is trading at a fair multiple of its earnings and its assets:
√(22.5 * 6 year average earnings per share (0.68) * 6 year average book value per share (8.078) = $7.55
At today's price of $65.03 per share, Lantheus is now trading 761.3% above the maximum price that Graham would have wanted to pay for the stock.
Even though the stock does not trade at an attractive multiple, it might still meet some of the other criteria for quality stocks that Graham listed in Chapter 14 of The Intelligent Investor.
Negative Retained Earnings In 2019, 2020, And 2021, No Dividend Record, and Decreasing Earnings Per Share
Ben Graham wrote that an investment in a company with a record of positive retained earnings could contribute significantly to the margin of safety. However, Lantheus had negative retained earnings in 2019, 2020, and 2021 with an average of $-234880777.7777778 over this period.
Another one of Graham's requirements is for a 30% or more cumulative growth rate of the company's earnings per share over the last ten years.With only 9 years of available data, the Lantheus cannot meet Graham's requirement of 30% growth over a 10 year period. Growth was disappointing during this period too. The average EPS during 2014 and 2015 was $-0.04 based on the reported values of $-0.20 and $0.13. Looking to the years 2021 and 2022, we see reported values of $-1.06 and $0.40, which averages out to $-0.33. This tells us that during this period Lantheus's earnings per share shrank by -725.0%.
We have no record of Lantheus offering a regular dividend.
Lantheus’s Balance Sheet Meets Graham’s Criteria
It was also essential to Graham that the company’s current assets outweigh its current liabilities, and that its long term debt be inferior to the sum of its net current assets (current assets minus total liabilities). This is the aspect of the analysis that most companies fail, yet Lantheus passes comfortably, with an average current ratio of 2.7, and average debt to net current asset ratio of -2.8.
According to Graham's analysis, Lantheus is likely a company of low quality, which is trading far above its fair price.
| 2018-02-26 | 2019-02-20 | 2020-02-25 | 2021-02-25 | 2022-02-24 | 2023-02-23 | |
|---|---|---|---|---|---|---|
| Revenue (k) | $331,378 | $343,374 | $347,337 | $339,410 | $425,208 | $935,061 |
| Gross Margins | 49.0% | 51.0% | 50.0% | 41.0% | 44.0% | 62.0% |
| Operating Margins | 16% | 19% | 15% | -1% | -18% | 4% |
| Net Margins | 37.0% | 12.0% | 9.0% | -4.0% | -17.0% | 3.0% |
| Net Income (k) | $123,385 | $40,518 | $31,667 | -$13,473 | -$71,279 | $28,067 |
| Net Interest Expense (k) | -$18,410 | -$17,405 | -$13,617 | -$9,479 | -$7,752 | -$7,185 |
| Depreciation & Amort. (k) | -$19,231 | -$13,929 | -$13,379 | -$24,689 | -$42,288 | -$47,929 |
| Earnings Per Share | $3.17 | $1.03 | $0.79 | -$0.25 | -$1.05 | $0.4 |
| EPS Growth | n/a | -67.51% | -23.3% | -131.65% | -320.0% | 138.1% |
| Diluted Shares (k) | 38,892 | 39,501 | 40,113 | 54,134 | 67,623 | 70,671 |
| Free Cash Flow (k) | $71,086 | $80,325 | $102,445 | $28,870 | $50,233 | $298,328 |
| Capital Expenditures | -$16,309 | -$19,132 | -$22,061 | -$12,474 | $3,683 | -$16,547 |
| Net Current Assets (k) | -$212,717 | -$173,414 | -$118,407 | -$171,391 | -$163,554 | -$196,495 |
| Long Term Debt (k) | $265,393 | $263,709 | $183,927 | $197,699 | $163,121 | $557,712 |
| Net Debt / EBITDA | 2.7 | 1.95 | 1.56 | 6.77 | -2.26 | 1.69 |
