Halozyme Therapeutics Inc (HALO)

[SmallCapAnalytics]

Negative Seeking Alpha Article - HALO
http://seekingalpha.com/instablog/24482903-brandonstocks33328/3656946-why-it-is-time-to-sell-halozyme-therapeutics

SUMMARY

-HALO is up over 100% in a month. It is vastly overbought and due for a 50% retracement.
-The risk vs. reward on Halozyme Therapeutics is not in favor of the longs.
-Expenses will greatly exceed revenue by approximately 70% in 2015.
-The chart has never been this overextended in its history.

ABOUT
Halozyme Therapeutics (NASDAQ:HALO) is a biopharmaceutical company. The company's research focuses primarily on human enzymes that alter the extracellular matrix. The company's pipeline consists of multiple clinical stage products in diabetes, oncology, and dermatology.


RECENT TRADING ACTIVITY: MOMENTUM BUYERS
In the past month, HALO has doubled. On December 17, 2014, it began its run from $7.75 and it is currently $15. This began to raise a lot of attention since Halozyme had not even pulled back until January 15 where it went almost -6% on the day. Let's dive in to find out why.

The big run-up was in anticipation of the J.P. Morgan 33rd Annual Healthcare Conference which would be held from January 12-15. It also ran with the entire biotech sector since this conference left many investors feeling optimistic about the future of these biotech companies.

Usually stocks will rise in anticipation of news, and then once the news hits, the momentum wears off. On January 13, the day after Halozyme presented (usually the time where momentum wears off), it began its descent, however, the minute CNBC's Jim Cramer said that HALO would be featured on Mad Money that evening, the stock shot right back up from $14.30 to $15 -- Essentially, emotional buying. The next day (after the show), momentum held it up around $15 but on January 14, due to no news or momentum holding it up, it plummeted almost 6% on the day. The point is that sometimes one can capitalize on others buying emotionally, but it is not a recommended strategy and can often lead to negative account balances.


RISK VS. REWARD
When looking for an entry point to go long, of course you want to buy low and sell high. After the emotional buyers that have driven HALO up over 100% without a true pullback, and looking at the history of the chart, to go long at $15 is not a good risk vs. reward scenario here. Risking potentially $5 or more of downside to capture a possible $1-$2 move to the upside is enough for anyone get a weak stomach. Personally, before I even begin to establish a long position, Halozyme will need to come down to the $12-$12.50 range, otherwise the margin for profit is too small while risk is too high.


THE CHART
(click to enlarge)
This is a daily chart showing 2 years of history. It has never run up this far without a pullback. Each time HALO ran up big, it saw a 50% retracement before any moves higher. This means that a move down to $12.50 is very likely. As you can see, volume has been fading and with that goes momentum. The relative strength index has also never been this overextended in the charts history. These are just a few reasons why we will see $12.50 very soon.


FUNDAMENTALLY SPEAKING
One thing that stood out from everything else was Halozyme's price to book ratio. Its P/B is an outrageous 44x. When you consider that a normal P/B ratio is about 3x, and that a high P/B for biotech is 20x, even now, you can see how overvalued this stock currently is.

(click to enlarge)

This is just a snapshot of how their financials might look in 2015. They expect revenues to be approximately 90M, however, their expenses approximately 150M. Basically, their expenses will be 70% higher than their revenues. For the ones who aren't good with math, that means there is a severe problem. Especially when the company's stock has been driven up 100%. This is another reason why the run up was all to do with momentum buyers.


CONCLUSION
Halozyme Therapeutics does look like a promising company with exciting products, however, due to the massive amounts of emotional buying, the risk vs. reward not being in favor of the longs any longer, the technical indicators & history of the chart, and the fundamentals, I would not consider going long at this point. However, it may be time for investors to begin locking in profits. Moreover, I do not see anything to be excited over if expenses exceed revenue by 70%. Everything ultimately comes down to capital. The reason they are in business is to make money, and if their finances will be -70% on the year, there is no point to invest in this company, no matter what kind of super drug they create. Even if that exact figure may be different by the end of 2015, I'd like to reiterate that it makes no sense investing in a company that will be so incredibly red on the year, especially at these outrageous levels.