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Research Report

Taro Pharmaceutical flashing buy signals for guru model portfolios Add to ...

Validea’s pick of the week provides a detailed report on a company that scores well in the stock-screening service’s model portfolios. On Validea.ca, investors can analyze 1,000 Canadian stocks through 12 different guru-based models and get individual reports on each company. Globe Investor has a distribution agreement with Validea.ca. Try it.

Israel-based international specialty pharmaceutical company Taro Pharmaceutical Industries Ltd. makes prescription and over-the-counter products. It's a U.S. leader in topical prescription products such as creams, ointments and gels, supplying about 1 in 8 tubes of such products sold in the U.S. It also specializes in medicines used in cardiology, pediatrics and neurology. Its market cap is $4.6-billion (U.S.).

Taro has grown EPS at a 38-per-cent pace over the long term (using the average of the three-, four-, and five-year EPS growth rates), part of why it gets strong interest from the Peter Lynch based model.

The company trades for 15.5 times ttm EPS, making for a 0.4 PE-to-growth ratio, which the Lynch and Motley Fool-based models like.

It has a debt/equity ratio under 3 per cent, another reason the Lynch and Fool models like it, and it has a stellar current ratio of 4.8.

Taro's 47-per-cent earnings per share growth last quarter and 88 relative strength help earn it some interest from the Momentum Investor model.

It has a return on equity of 43-per-cent vs -57 per cent for the biotech/drug industry.

Taro's exceptional 42-per-cent profit margins vs industry average of -98 per cent and $5.33 in free cash flow per share are two more reasons it gets some interest from the Fool model.

Its 37-per-cent return on total capital impresses the Joel Greenblatt approach.

John Reese is long TARO.

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