Buying coronavirus stocks is not a popular time. With President Joe Biden predicting that life could be back to a certain level later this year, many investors are moving away from stocks that could be lost. Their sales numbers fall in the post-pandemic world.
That’s part of the reason Quidel (NASDAQ: QDEL), which is coming off a monster quarterback, has seen a share price tank nearly 40% in the past month, while the S&P 500 rose less than 1%. Despite being so bearish, for me, the dip provided an opportunity that was too good to go up. I thought $ 175 was a really good price to buy the stock, so getting it at just over $ 130 was just too attractive. This is why I decided to buy shares of Quidel and why there is enough reason to be bullish on the stock.
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1. COVID-19 tests do not pass
On February 18, Quidel released its earnings in the fourth quarter. Sales for the period to December 31, 2020 amounted to $ 809.2 million, up 432% from the prior year period. But of that total, $ 678.7 million, or 84%, came from COVID-19 diagnostics.
Quidel is a big name in trials, and its results are in great demand to help spread the coronation. But if the pandemic ends this year and life returns to normal, investors may expect a sharp decline in the company’s revenue.
While Quidel is likely to see a drop in sales, that does not mean they will disappear. If so Moderna Chief Stephane Bancel is right, COVID-19 could be around forever. Yes, that could be a biased idea coming from a company that vaccinated for the disease and that would be beneficial if COVID-19 were never phased out. But COVID is unlikely to go out of sight in 2021, and we will never hear of the virus again.
Vaccines will help stop the spread of the virus, but there is one problem: Not everyone likes (or is able to) get one. According to a study from Pew Research, 21% of adults in the U.S. do not plan to get vaccinated. That means the test must be there, at least until health officials believe COVID-19 is no longer a major threat.
What stood out to me from Quidel’s latest employment call is that the company has been turning away opportunities because it has been so busy. CEO Doug Bryant said he has “huge interest” in the travel, sports and dinner markets which he cannot pursue so far.
These are businesses that will benefit from the COVID-19 test because otherwise, there is a risk of a revolution, which can prevent them from operating at full capacity. With these opportunities still available with Quidel, the company could continue to generate strong sales numbers in the future.
2. Quidel stock is very cheap
Things went from bad to worse for Quidel earlier this month when the company said it expects 2021 revenue to come in at around $ 2.5 billion, well below $ 2.9 billion investors expected. Supervisors noted that, in recent months, demand for testing has “declined significantly.” But it is important to note that this is a maintenance guide and does not take into account potential increases, including test sales outside the U.S. and strong demand. potential for their QuickVue self – test facilities (the U.S. Food and Drug Administration issued an emergency use permit for home testing at the company on March 1).
However, even at $ 2.5 billion in revenue, Quidel could be a dirt-free purchase. In 2018 and 2019, the company’s profit margin was around 14% (I’m excluding the impressive 49% margin in 2020 due to conservatism). If the company earned the same level of $ 2.5 billion, Quidel could make $ 350 million in profit for this year. With approximately 44 million diluted shares payable, that would increase its profit per share at $ 7.95. At a typical share price of nearly $ 140, that puts the stock at a price-to-earnings (PE) price of 17.6. Even before the pandemic, investors were paying much higher diversification for shares of Quidel:
Data QDEL PE Ratio by YCharts
And the average stock in the Department of Healthcare SPDR Fund trading at more than 27 earning hours. Even with the soft income management, Quidel stock is cheap.
3. Quidel is also a low risk investment
Another reason I decided to invest in the company is that Quidel is not too risky from stock. As mentioned above, its margins have been strong, and while it may decline in sales, it seems like a safe bet to keep going. make a profit. This is not a speculative, high-risk business that is in danger of going bankrupt, or a business that requires investors to sell from a Reddit forum to promote its shares.
Quidel is, at worst, a test company that may miss the growth numbers it posted in 2020. But at a small valuation, that’s not a bad business to invest in. because testing in the healthcare industry will always be needed.
4. It has strict cost management
One of the reasons I don’t worry too much about the company is that even in difficult times, I am confident that Quidel management can keep its costs down and turn a profit. What stood out to me on the recent earnings reports is that, despite the increase in sales in 2020, the company ‘s costs did not skyrocket along with revenue.
In 2020, Quidel’s operating expenses totaled $ 288.5 million and accounted for just 17% of its total sales. In 2019, that percentage rose by about 43%, and the previous year it was at 42%. This suggests that, even with declining sales, Quidel can still comfortably post a profit. If a business can grow without adding more costs, that is a good sign that its earnings will also grow much stronger as it grows up.
Baseline
While many investors may be dependent on Quidel’s future, things don’t look so bleak for the company. And with strong fundamentals and stock trading at very cheap prices right now, it is a low risk option that has the potential to deliver exceptional results.
This article represents the opinion of the writer, who may not agree with the “official” recommendation position of the Motley Fool chief consulting service. We are motley! Questioning an investment dissertation – even one of our own – helps us to think critically about investing and make decisions that will help us become softer, happier and richer.