Does Celgene Support All-Time Highs?

With shares of Celgene (NASDAQ:CELG) trading around $123, is CELG an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Celgene is a global biopharmaceutical company engaged in the discovery, development and commercialization of therapies designed to treat cancer and immune-inflammatory related diseases.  Its primary commercial stage products include Revlimid, Vidaza, Thalomid, Abraxane and Istodax. Celgene has made excellent advances and produces the products demanded by a large audience. These trends are poised to continue so look for Celgene to see profits rise into the future.

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T = Technicals on the Stock Chart are Weak

Celgene has seen a monster run, consisting of higher highs and higher lows, over the last couple of decades. In fact, the stock is now trading at all-time high prices. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Celgene is trading above its rising key averages which signal bullish price action in the near-term.

CELG

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Celgene options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Celgene Options

29.1%

83%

85%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Flat

Average

June Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion…

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Celgene’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Celgene look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

-32.97%

19.75%

38.98%

66.67%

Revenue Growth (Y-O-Y)

12.69%

13.52%

15.55%

13.16%

Earnings Reaction

-0.74%

0.35%

3.38%

-6.4%

Celgene has seen increasing earnings and revenue growth over most of the last four quarters. From these figures, the markets have been mixed about Celgene’s last four earnings announcements.

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P = Excellent Relative Performance Versus Peers and Sector

How has Celgene stock done relative to its peers, Novartis (NYSE:NVS), Cell Therapeutics (NASDAQ:CTIC), Amgen (NASDAQ:AMGN), and sector?

Celgene

Novartis

Cell Therapeutics

Amgen

Sector

Year-to-Date Return

51.81%

14.62%

-12.40%

25.24%

19.03%

Celgene has led its peers and sector in year-to-date performance.

Conclusion

Celgene provides products that are seeing increased demand from a growing customer base around that world. The stock has been an excellent performer and is now trading at all-time high prices. Earnings and revenue figures have generally been great but investors have sometimes expected more from the company. Relative to its peers and sector, Celgene has led its peers and sector in year-to-date performance by a wide margin. Look for Celgene to continue to OUTPERFORM.

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