Anika: A Zweig-Style Buy

06/28/2016 8:00 am EST


John Reese

Founder and CEO, And Validea Capital Management

John Reese selects stocks based on the investing strategies of the stock market's most legendary investors; here, the editor of Validea looks at a healthcare with high scores on the Martin Zweig's growth investors approach.

Anika Therapeutics (ANIK) is an orthopedic medicines company; it offers offering some 20 therapeutic pain management products based on its hyaluronic acid (HA) technology.

These products alleviate pain and restore joint function by replenishing depleted HA and aiding cartilage repair and regeneration. It orthopedic medicine portfolio consists of Orthovisc and Monovisc; in the pipeline are Cingal and Hyalfast.

Under the Zweig strategy, the P/E of a company must be greater than 5 to eliminate weak companies, but not more than 3 times the current market P/E. ANIK's trailing P/E is 22.50, passing this test.

Another important issue is that the rate of quarterly sales growth is rising. For ANIK this criterion has been met.

The earnings numbers of a company should be examined from various different angles. One being that the current EPS be positive.

ANIK's EPS ($0.45) pass this test. The EPS for the quarter one year ago must be positive. ANIK's EPS for this quarter last year ($0.23) pass this test.

The growth rate of the current quarter's earnings compared to the same quarter a year ago must also be positive. ANIK's growth rate of 95.65% passes this test.

The EPS growth rate for the current quarter, 95.65% must be greater than or equal to the historical growth, which is 37.67%. ANIK would therefore pass this test.

One final earnings test required is that the long-term earnings growth rate must be at least 15% per year.

ANIK's long-term growth rate of 37.67%, based on the average of the 3, 4 and 5-year historical EPS growth rates, passes this test.

A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down.

If a company does have a high level, an investor may want to avoid this stock altogether. With no debt, Anika passes this test.

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