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Clovis Oncology Stock Tanked 14% Yesterday: Time To Buy?

Despite an almost 60% rise since the March 23 lows of this year, at the current price of around $6 per share, we believe Clovis Oncology stock (NASDAQ:CLVS) has more room for growth. CLVS stock has rallied from under $4 to $6 off the recent bottom, compared to a 45% move for  S&P500. In fact, the stock price swelled to levels of $10 in May after the U.S. FDA approved its only marketable drug Rubraca for the third-line treatment of prostate cancer. That rally was short-lived, though, as AstraZeneca and Merck’s Lynparza also bagged the regulatory approval for prostate cancer.

Notably, CLVS stock is down 90% from levels of $68 seen in early 2018, two years ago. This massive decline was primarily led by the rise of AstraZeneca and Merck’s Lynparza, which appears to be better placed against Clovis’ Rubraca for future growth. However, going by fundamentals, the company’s performance has been robust over recent years thanks to growth in Rubraca sales. Revenues grew 158% from $55.5 million in 2017 to $143 million in 2019. This clubbed with a 14% increase in total shares outstanding translated into a strong 125% rise in revenue per share from $1.18 to $2.65. Our dashboard, ‘What Factors Drove 91% Change in Clovis Stock between 2017 and now?‘ has the underlying numbers.

Clovis’ P/S multiple changed from 58x in 2017 to 4x in 2019. While the company’s P/S is now 2x, there is an upside when the current P/S is compared to levels seen in the past years, P/S of 10x end of 2018 and 4x as recent as late 2019.

So what’s the likely trigger for the stock?

The global spread of Coronavirus has meant fewer hospital visits due to restrictions on movement, and this has impacted the sales of pharmaceutical companies, including Clovis. The company reported a 21% growth in Q2 sales, which fell short of consensus estimates. Looking forward, Rubraca’s result from ongoing trials for second-line treatment of prostate cancer is expected to be out only in 2022, post which the company will try for first-line setting as well. We believe Rubraca’s sales will continue to expand over the coming years from $143 million in 2019 to as high as $750 million in peak sales in 2028. This should bode well for the stock. That said, investors willing to invest in Clovis should weigh the threat from AstraZeneca and Merck’s Lynparza, which is expected to see stronger growth over the coming years for similar settings in prostate cancer treatment. 

However, over the coming weeks, we expect continued improvement in demand and subdued growth in the number of new COVID-19 cases in the U.S. to buoy market expectations. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations vs. historic valuations become important in finding value. Going by the current valuation, we believe Clovis looks attractive at the current levels of $6 for investors willing to be patient. 

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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