Will Celgene Continue to Trade at All-Time Highs?

With shares of Celgene (NASDAQ:CELG) trading around $155, 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.

Celgene’s new arthritis drug has proven to be safe and highly effective during a trial of 527 patients who hadn’t been treated for arthritis before. The pill Apremilast, when taken twice a day, was found to notably reduce the signs and symptoms of psoriatic arthritis, and symptoms further improved after a year of taking the drug. Celegene’s drug is the first pill option for treating the disease, and will compete with injectable treatments currently available that have more serious side effects, according to Reuters. Celgene is expecting high sales from the treatment.

T = Technicals on the Stock Chart Are Strong

Celgene stock has been trading at its higher highs and higher lows. The stock has made new all time highs just about every year and looks to be headed there this year as well. 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 neutral to 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

35.91%

66%

64%

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

Put IV Skew

Call IV Skew

November Options

Flat

Average

December 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 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 Mixed 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?

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

-10.31%

35.37%

-1.11%

-32.97%

Revenue Growth (Y-O-Y)

17.98%

16.97%

15.08%

12.69%

Earnings Reaction

0.66%*

-1.27%

3.42%

-0.74%

Celgene has seen decreasing earnings and increasing revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings with Celgene’s recent earnings announcements.

* As of this writing

P = Excellent Relative Performance Versus Peers and Sector

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

Celgene

Novartis

Therapeutics

Amgen

Sector

Year-to-Date Return

98.04%

24.98%

43.08%

37.10%

36.05%

Celgene has been a relative performance leader, year-to-date.

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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