PDL BioPharma is an interesting company. They really do not make anything. Instead, the finance patents within the pharma industry, providing financial monetization of royalty streams to companies and academic institutions. Their market capitalization is $365 million and the stock is trading at $2.20 per share.
Basically, what the company does is it finds patents that an institution or company has filed and then PDLI monetizes that patent. Then, the company licenses the patent out taking in a spread between what the company pays to the patent holder and the fees collected by companies using the patent. They are a middleman for the pharma patent industry.
The companies assets have been increasing over the past several years:
2012: $275
2013: $537
2014: $929
2015: $1,000
This means that the company’s revenue stream will also continue to increase. But, what has been most eye-catching to me is its earnings per share over the same period:
2012: $1.52
2013: $1.89
2014: $2.04
2015: $2.04
Keep in mind the price of the stock is trading at $2.20 per share. Essentially, you are getting 1:1 ratio on your investment, and unheard of return on investment in the financial markets. The earnings are strong and they are generally growing. Assets are growing as well. And, yet, the company’s stock is trading at a paltry ratio for EPS. And, this is not an industry thing. The industry and the sector averages are extremely healthy when you look at their ratios, respectively: 29.13 & 28.68. If this stock were to be trading at these averages, the stock would increase in value by a massive 14-times. That puts the stock trading at $28.00 per share.
I have looked everywhere to figure out what it was that kept this stock down so low, but there is no indicators that say why PDLI has been left behind like it has. And, the healthcare industry has been very strong over the past several years, what, with the Baby-Boomers reaching retirement age and that age where their healthcare needs increase significantly.
The economy, in general, continues to expand, yet another reason that this company will be doing well in the future. Our Federal Reserve has been increasing interest rates over the past several months to normalize interest rates. This will also have an added benefit to push the revenue of this company forward. The spread on future earnings is going to be increased with inflation and interest rate increases.
But, management’s ability to utilize and resell its assets has been impressive as it continues to increase its revenue by licensing out the patents. By doing this, reselling the same patent multiple times, the company increases its revenue stream without having to create additional costs. The company’s position as one of the leaders in this aspect of the pharma industry enables them to build up their base further and further. Continually, the company leverages its assets and improves its earnings potential.
You would be hard pressed to find another stock at this low of an EPS ratio. This may be the single most discounted stock I have found to date. With an economy that is expanding, a stock market that is trading at a high ratio, as well as this particular industry, it is a very difficult thing to pass up on picking up this stock. Holding on to this stock in your portfolio for a very long time would end up being highly rewarding. Once the market starts looking at the ratios and then they find this stock, PDLI will be pushed much, much higher.