- Ranked an average rating of BUY by multiple analysts http://www.marketwatch.com/investing/stock/incy/analystestimates
- Has increased over 500% in the past three years.
- Volume has more than doubled over the past twenty days
Incyte(NASDAQ:INCY), in the words of yahoo finance, “ focuses on the discovery, development, and commercialization of proprietary therapeutics primarily for oncology. It offers JAKAFI, an oral janus associated kinase (JAK) inhibitor for the treatment of patients with intermediate or high-risk myelofibrosis (MF), including primary MF, post-polycythemia vera MF, and post-essential thrombocythemia MF.”
There are many factors that make INCY an interesting stock:
- Passes multiple green flags that historically beat the market.
- Increasing piotroski score leads us to assume more value for the price
- Fundamentals show a strong, stable company with a lot of upside still available.
Screen Name: Large Biotech
When using the Equities Lab system the majority of the stocks are found using screeners. These screeners typically outperform the market when backtested, and offer an insight into how that screen may perform in the future. In this case, we are using a screen I developed from within the software known as Large biotech. The point of this screen is to find large biotechnology companies that are in the process of building and releasing new products.
- Classify as Biotechnology company
- Since this is a biotech screener we need to narrow our field of screening to just biotechnology companies
- Earnings per share 1Q must be over 0
- A lot of biotechnology companies are currently pumping a lot of money into finding the cures for certain diseases or building a new medical treatment while they are not pulling any money in for existing products. This parameter is designed to ensure that they are pulling in more money than they are putting out, and that in the event they decide to give a dividend they have money to do so.
- Net income must be growing over the past year
- Much like Earnings per Share we are looking for an increase in income relative to the company. That means that we are looking for a company that is most likely increasing spending on product development and promotion, but is, at least, increasing sales the same amount to justify that investment. Not only do we want the new income to cancel out the new costs, we are looking for companies that are growing their net income.
- Must be putting over $100 million into research and development over the past year
- The company needs to be growing its product line, or at least attempting to, in order to screen for future potential growth. Larger biotechnology companies who already have existing product lines should be putting more money into the research and development side to protect their company from simply becoming a cash cow, especially when a lot of investors in this area rely on growth rather than income.
- Must have a closing price above $20
- A $20 share price doesn’t necessarily constitute giant, but it does cut out the majority of the smaller firms that have a more volatile share price and a lack of deep fundamentals.
- The closing price must have changed by 10% over the past three months.
- We are looking for a company that is growing, both financially and price wise. However, we don’t want a company that is putting up massive numbers in terms of their price growth as those companies tend to be too volatile to invest in long term. As a result we are looking for companies that are growing right around 10% every few months.
So, how does the backtest look?
In my opinion it looks pretty good, with an annual return of 44% over the past three years.
Incyte has been climbing pretty steadily over the past three years, hitting a rough patch recently along with the rest of the market, but even though there is increased volatility the price still seems to be bouncing back with positive future prospects.
This buy is based purely on the growth prospects of INCY as they don’t give a dividend and there isn’t any plans to start giving dividends in the near future.
Fundamentally, how does INCY look, and what do these fundamentals mean for the company’s future?
- Increasing Piotroski Score
- The Piotroski Score is one of the number one ways to assess value in a security. it was developed by Professor Joseph Piotroski at the University of Chicago. This score, out of 9, can be a good indicator of whether or not one should invest in a certain stock.
- In the case of INCY, this is an important aspect because not only does INCY have a good piotroski score, 6/9, its piotroski score has been growing over the past year. This means that, over the past year, INCY’s value when compared to price has increased. Now, this is all fine and well, but without support this statement means nothing. Let’s go back over the past twenty years, screening for all stocks that have a growing piotroski score and a score equal to 6. Though not drastic, just screening for those two parameters still beats the market over the past twenty years; giving me a positive outlook on the future of this company.
- Growing Volume
- Volume is one of the key indicators in evaluating a stock’s momentum.Buying stocks with momentum is a fairly widely spread strategy, and INCY falls right into the profile of a successful momentum stock, increasing over an extended period of time, high market cap, and an over 100% growth in volume over the past 10-20 days.
- Over the past few years the interest around Incyte has stayed roughly consistent. However, late last month that interest appeared to spike – doubling the daily volume. Now, this was simply a small spike where the volume skyrocketed and quickly returned back to its normal level, no, interest has spiked in INCY, and it seems to continue to rise. There are however a lot of people that scream neigh neigh to momentum strategies so we will take INCY’s case and apply it to the broader market. We can do this by creating a screen that looks for all of the companies where the volume has increased by over 100% in the past ten days. Now, a lot of the companies we will get in this screener tend to be lower quality stocks, such as penny stocks, and they may skew the results in a way that doesn’t reflect the performance of larger companies. Therefore, we are going to add a parameter that all companies found by the screener must have a market cap above $10 billion. Here are the results – Though return isn’t incredible over the past 20 years it still beats the market, and, in turn, gives me a positive impression about INCY’s future.
Overall, INCY is a fantastic stock with a lot of growth potential. The fundamentals behind INCY are incredibly strong, and the green flags that are raised when looking at INCY indicate a growing company with a lot of upside in the long run. I don’t typically give strong buy ratings, but in INCY’s case I may need to make an exception. It has been consistently putting up results over the past few years, and has been going strong, albeit volatile, over the past month. In the long run, this stock is going to continue to grow as they push out new products, and they continue to put their free cash in the right areas to spur sales and growth.