GameStop (GME) and biopharma Bausch Health Companies (BHC) are two firms that have put themselves back on the path for growth — after experiencing a downturn for a long time. Shares of these two stocks are higher by 2,790% and 82%, over the past year. 

These companies also have attracted substantial institutional demand. Ryan Cohen, the co-founder of Chewy, is personally steering GameStop’s momentum after buying a 13% stake in the firm. Meanwhile, billionaire hedge fund guru Carl Icahn bought 7.83% of Bausch Health’s shares. Here’s how these businesses might push forward.

1. GameStop

It was obvious from the start what this retailer needed to make a comeback: close their unprofitable locations, invest in e-commerce, and change its outdated services. 

The problem was no one believed in its future. Lenders believed the company was going extinct and stayed far away. Due to short-selling, its share price also stayed low to cause equity financing to be impossible. 

That changed when the legendary short squeeze, which happened on Reddit, sent its stock skyrocketing. Thanks to this boost, GameStop brought in $551 million in cash by selling only 3.5 million units (around 4% of the firm). A year ago, it would have brought in just $13.2 million by selling this same total.

With this cash, it was able to deal with its long-term debt. Now, GameStop is primed for growth. Last year, the company’s e-commerce went up by a stunning 191%. Online sales of consoles, video games, and collectibles are now 30% of its revenues of $5.09 billion.

The best thing about GameStop is its current low valuation. Despite its new momentum and cash balance, the stock is only at 2.26 times revenue. Stocks in the retail sector usually go for between 0.8 times to 4.5 times revenue, with more e-Commerce sales meaning a higher value. So there is certainly room for more money to be made.

2. Bausch Health Companies 

Bausch Health Companies is a pharma company with a dark history. Formerly called Valeant Pharmaceuticals, the company started a streak of leveraged purchases in the early 2010s. It had vast piles of debt, bought a competitor, laid off staff and raised its prices, and continued on to the next while its profit margins increased. This stopped suddenly in 2015 after an accounting scandal and political anger over its price-increasing dealt a heavy blow.

Now, Bausch Health is a group of contact lens makers and eye care company Bausch + Lomb, various dermatology companies and Salix Pharmaceuticals. The company has $24.1 billion in debt and generates only $1.428 billion per year in earnings.

 

Over $15 billion of its $8 billion in annual revenue goes to interest alone. The firm only has $452 million for the R&D to produce new drugs every year. 

The fact that it is still alive is a miracle. But, despite poor choices, the former CEO of Valeant Pharmaceuticals, Michael Pearson, made one smart move: the buying of Bausch + Lomb in 2013 for $8.7 billion. Due to the growth of contact lenses, Bloomberg says the subsidiary’s value could be between $20 billion and $30 billion.

Right now, Bausch is trying to unload its Bausch + Lomb company. If it finds someone to buy the subsidiary for anywhere close to that price, it might remove its debt and start new. It is also thinking of doing a spinoff of Bausch + Lomb away from its core business to silo out its liabilities.

Trading at just 1.45 times sales, Bausch might be a buy if it can come back from debt and chart a path forward. For now, the firm makes enough money to pay its interest and refinance when debt principles are due. It is now a bargain compared to the average pharma stock which are usually priced at five times revenue.

 

Author: Scott Dowdy

Comments are closed.

Ad Blocker Detected!

Advertisements fund this website. Please disable your adblocking software or whitelist our website.
Thank You!