Protagonist Therapeutics (PTGX) is an interesting clinical stage biopharmaceutical stock for a number of reasons.
The company is in the process of developing a hepcidin mimetic called PTG -300 for the treatment of a condition called polycythemia vera. Further research shows that the polycythemia vera condition involves the body overproducing red blood cells, and that PTG-300 has shown clinical value for treating this condition.
Protagonist Therapeutics is also working on an antagonist peptide solution for Crohn’s disease and some other novel peptide-based therapeutics. Peptides are specific chains of aminos that are useful in modern healthcare.
Persistent Negative EPS Should Make Investors Wary
Like many early stage companies in this space, Protagonist Therapeutics talks about itself as an “emerging growth company” and has prospects to apply its developments to multiple healthcare scenarios. But do the financials back the claims?
Earnings-per-share and revenue are strong indicators of where a stock might be likely to go in the future. Analysts will build revenue forecasts and estimate where costs of research will be in coming quarters to create a discounted cash flow forecast for the company. We’ll come to that in a moment.
In terms of EPS, Protagonist Therapeutics returned -$0.54 per share for the first quarter of 2021 on May 4.Prior to that, in March, the company reported -$0.48 per share for the last quarter of 2020.
For the third quarter of 2020, Protagonist Therapeutics reported -$0.21 per share, and after the second quarter, the firm reported -$0.59 per share.
Most earnings projections show better EPS numbers for future quarters through 2021, but also indicate that EPS is going to continue to be negative.
So what’s up with negative earnings per share?
It’s not necessarily a terrible thing for a company to have negative earnings per share. Many companies like Protagonist Therapeutics that are in R&D phases routinely return negative EPS. Even some other retail companies and other stocks have EPS in the negative range.
However, if a company never becomes profitable, cash problems quickly appear. Top line sales solves those problems.
In terms of revenue, PTGX reported total revenue of $28.6 million for the year 2020. That’s against only $200,000 in total revenue for 2019, where Protagonist Therapeutics saw 30.9 million in revenue in 2018.
Notwithstanding the incredible contraction in revenue for the year 2019, analysts expect that Protagonist Therapeutics will return relatively strong revenues in 2021, especially if the company makes decent headway on some of the peptide solutions. FDA approval is going to matter, too.
Protagonist Issues More Stock, Diluting Shareholders
When investing in a biopharmaceutical firm like this with negative EPS and obstacles for the specific product developments in question, the risks to investors are high. From liquidity and financing risk to clinical trials approval concerns.
In addition, Protagonist Therapeutics investors have to worry about a stock offering of a million shares announced June 14 in a prospectus supplement filed with the SEC. That’s after a history of not pursuing new offerings or diluting stock over a number of years.
Announcing the stock offering, Protagonist Therapeutics suggested this income will fund research and development, which could position PTGX well to compete in its sector. However, one prime concern for shareholders is stock dilution. New stock offers tend to dilute existing shares, which could have a chilling effect on price growth.
PTGX Share Price Has Decent Upside Potential
The fair market value for PTGX according to analysts estimates is $48.14 per share, suggesting there’s still reasonable upside for current shareholders.
Analysts expect Protagonist Therapeutics price to rise 27% to over $42 per share within a year.
Technical analysts note the stock is now trading above its 20-day and 50-day moving averages, which is another good indicator of current strength.
Revenue is forecast to grow 50%, and company leadership continues to be excited about the potential for the firm’s healthcare solutions. All of that points a rosy picture for a stock trying to demonstrate scaling and potential, albeit one that has sometimes struggled in past quarters.
Is Protagonist Therapeutics Stock A Buy? The Bottom Line
The bottom line is that Protagonist Therapeutics does have Buy indicators supporting higher prices, and some suggestions that it is going to grow in the future.
However, the aforementioned risks and the difficulty of constructing cash flow forecasts with confidence should make investors cautious. This type of analysis can get confusing.
For a company with negative earnings, it’s a good idea to not only look deeper into the firm’s products to estimate whether regulatory approval is likely. Analysts are certainly betting on a positive outcome which is why fair value lies so much higher than the current share price.
If you think that PTGX has what it takes to compete in clinical outcome deliveries, and you think that the lower numbers are precursors for something better, than PTGX is almost definitely a buy.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.