Cephalon Inc. (CEPH) at $56.61

Speculation Observation

Cephalon Inc. (CEPH), according to Yahoo!Finance is, "a biopharmaceutical company, engages in the discovery, development, and commercialization of products for central nervous system, inflammatory disease, pain, and oncology therapeutic areas."

The earnings history of this company is a train wreck filled with inconsistency. This, more than anything else, makes CEPH highly speculative. It seems that this company is still on the borderline of being an upstart biotech company and a major drug manufacturer. I don't understand how Valueline and Morningstar could attach such high expectations as $170 and $140 on the upper end.

This company is within 7.73% of the one year low. This situation may have many reasons why it is trading so close to the low however the technical pattern for this stock is very interesting. As indicated in the chart below, we see that CEPH has an upside down head-and-shoulder formation. In addition, the stock has an ascending low price (red line) that is about to converge with the descending high price (blue line.)

For whatever reason, this stock has the ability to make wide swings up and down within an overall declining trend of the market.

According to Dow Theory, this stock has the following downside targets:
  • $54.20
  • $14.40
  • $4.00
The fact that the stock hit a low of $52.55 recently and turned up could indicate that this stock has seen its bottom.

According to Value Line Investment Survey, CEPH has an average price to cash flow ratio of 14. After adjusting the price/cash flow downward from 95 million to 78 million diluted shares I got an average price of $66.92. This means that the stock is theoretically trading 18% below the average historical price.

However, if we don't adjust for the increase in shares from 78 million to 95 million then we get historical price of $81.62, a 44% difference from the historical average price. We always want to assume the worst in this scenario so we're going with the 18%.

Please check the fundamentals for this company to verify that you've got the guts to hold on to this stock were it to fall to the $39.80 level or lower. Good luck in your research of this company and remember that CEPH is highly speculative.

Art and Touc

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