Cubist Pharmaceuticals, Inc. (CBST)

Cubist’s spectacular growth is highlighted by its 517% revenue increase from 2004 and 253% profit increase from 2007. Their primary marketable product (CUBICIN) has proven to be a success. The Company is active with seven new drugs in the “pipeline” with the goal of final FDA approval. This could prove lucrative for stock holders. Earnings yield, return on equity, and profit margin are all well above average. The Company’s excellent cash position enables it to pay off all its creditors today or within two years on profit alone. The PE, PB, and PS ratios are all below the sector average indicating the stock to be substantially undervalued. The Company has outperformed 25% of the market in the last 12 months indicating the stock to be substantially undervalued relative to its fundamentals grade of 90%. Cubist is valued at $37.32 and is substantially undervalued at a current price of $17.34 (November 13, 2009). The technicals indicate a bullish rectangle pattern. The stock can be expected to remain flat or go higher short term. Well known institutionals such as Vanguard, Barclays, and T. Rowe Price have large stakes in Cubist. Risks include reliance on one flagship product, possible failure to obtain FDA approval, competition including patent infringement, litigation, dependence on third parties to manufacture products, etc. For more risks, see section 1A of the 2008 Annual Report.

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Initiated coverage on these guys last month. They develop drugs in the acute care environment, such as skin and blood infections. Excellent fundamentals: low P/E and PEG ratios, very healthy profit margins and ROE north of 60%. Only drawback for me is their debt load (D/E=0.55), but that's to be expected in the biopharmaceutical industry. With nearly $500 million cash, their balance sheet is in overall good shape.

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