Replies to post #363593 on Elite Pharmaceuticals Inc (ELTP)

[no2koolaid]

The following is from a WSJ story from 12.21.21…

Since early November, the most speculative stocks have been crushed, even as the wider market reached new highs. Among those losing 20% or more: The “meme” stocks of GameStop and AMC Entertainment, electric-car maker Tesla, hydrogen darling Plug Power, bitcoin and a host of tiny unprofitable stocks. The businesses have little in common, but all have high valuations that rely on buyers willing to bet on a story—and have benefited from the surge in individuals trading stocks. No one buys GameStop, let alone bitcoin, because of a discounted cash flow model. Still, the value of speculative stocks and crypto depend on stories, not on reported earnings. It is about what is possible, even if not probable.

The WSJ article might explain why the call for Elite to be more "transparent" and offer more information for “investors” seems a deflection aimed more at speculating – a story that has nothing to do with business realities. As the article makes clear, a DCF done on meme stocks would be futile, they have no real growth to base a DCF upon, as the DCF calculation requires a projected growth rate over time. That AMC & GME, as businesses that are shuttering locations, terminating employees, and operating at a loss, are the antithesis of Elite is correct. We can do a DCF on Elite because it is profitable and its prospects for enhanced profitability are greater due to the recently engaged partnership with Dexcel, which poses an opportunity to commercialize its business globally (or at least in Israel and Western Europe, but investors will take that). Now that should be a story to base one’s investment decisions upon, as it lacks speculation and is embedded in a real investment narrative.

[no2koolaid]

Let's talk about this...

Plus, the track record of return on R&D is quite questionable.

https://www.investopedia.com/terms/r/return-on-research-capital.asp

Return on research capital is a component of productivity and growth since research and development is one of the ways companies develop new products and services for sale. This metric is commonly used in industries that rely heavily on R&D, such as the pharmaceutical industry.

Return on research capital (RORC) measures a firm's revenues generated from R&D activities.
Return on research capital (RORC) is calculated by dividing current gross profits by the prior year's R&D expenditures. It usually takes more than one year to realize the return on R&D; sometimes, it may be realized over more than one year.

Elite's RORC? Based on Q 2 data...
RORC = Current Year Gross Profit / Previous Year R&D Expenditures

Where gross profits = 3,768,149
Where the prior year's R&D = 2,091,618
The calculation is 3,768,149 / 2,091,618 = 1.802

That means for every one dollar in R&D spent, Elite has generated $1.80 in economic value.

According to the data, Elite's track record on return in R&D investment is actually positive. So there is no question about it, Elite's return on research capital is in line with good pharma companies. Now, to be sure, there are many pharma firms that have a negative return and they would qualify as questionable. But, according to the data, Elite is doing fine.

OBTW: Just did a little comparative research and for their last Q PFE (Pfizer) had an RORC = $1.35. That means, on a comparative basis, little Elite is producing $1.80 v. PFE $1.35. If anyone is doing the math at home, yes that means Elite is more efficient and before getting into the question of logical comparatives, it remains that the data is the data and from it we can conclude that it would be inaccurate to say Elite's RORC is "questionable!" As the data just showed, it is not questionable. That is an undeniable fact!

Personally, I would like to see more data driven analyses rather than subjective pronouncements as if fact.