Down Over 20% In A Month Can Arvinas Stock Rebound?

by Trefis Team
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[Updated: 04/14/2021] Arvinas Update

Earlier this year, we talked about why Arvinas stock (NASDAQ: ARVN), a biopharmaceuticals company focused on oncology treatments based on targeted protein degradation, is vulnerable to downside risk. ARVN stock price has since corrected around 26% from levels of near $82 in mid-January to $61 now. What triggered the recent drop was the company’s Q4 performance, which came in much below the street expectations, followed by multiple downgrades from analysts. Total revenue forecast for 2021 (consensus) dropped from $25 million to $15 million, while average estimates of loss per share increased from $3.03 to $3.49.

Now that the stock price has corrected over the recent months, and it is down 5% in last five trading sessions, what’s next for Arvinas? Based on our machine learning analysis of trends in the stock price over the last few years, we believe that the stock will rise 9% over the next month (twenty-one trading days). Historically, If ARVN stock moved by -5% over 5 trading days, THEN over the next 21 trading days, ARVN stock moves an average of 9.3%, which implies an excess return of 6.7% compared to the S&P500. More importantly, there is 59.9% probability of a positive return over the next 21 trading days and 62.5% percent probability of a positive excess return, based on our AI engine. But how would these numbers change if you are interested in holding ARVN stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test Arvinas stock chances of a rise after a fall. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day!

Answer: Consider two situations,

Case 1: Arvinas stock drops by -5% or more in a week

Case 2: Arvinas stock rises by 5% or more in a week

Is the average return for Arvinas stock higher over the subsequent month after Case 1 or Case 2?

ARVN stock fares better after Case 2, with an average return of 9.2% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 17.9% for Case 2.

In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.

Try the Trefis machine learning engine above to see for yourself how Arvinas stock is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer: If you buy and hold Arvinas stock, the expectation is over time the near term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

You can try the engine to see what this table looks like for Arvinas after a larger loss over the last week, month, or quarter.

Question 3: What about the average return after a rise if you wait for a while?

Answer: The average return after a rise is understandably lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks – although ARVN stock appears to be an exception to this general observation.

ARVN’s returns over the next N days after a 5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

Next N Days
ARVN Average Return
S&P 500 Average Return
1 day 0.9% -0.3%
5 days 5.5% -0.3%
10 days 11.7% 0.1%
21 days 17.9% 0.5%
63 days 36.9% 3.0%
126 days 36% 6.6%
252 days 65% 11.7%

It’s pretty powerful to test the trend for yourself for Arvinas stock by changing the inputs in the charts above.

[Updated: 01/13/2021] Is ARVN Stock Overbought?

After a solid 2x rise since the March 23 levels of last year, at the current price of around $82 per share we believe Arvinas stock (NASDAQ: ARVN), a biopharmaceuticals company focused on oncology treatments based on targeted protein degradation, has reached its near-term potential. ARVN stock has rallied from $35 to $82, significantly outperforming the S&P which moved 71% over the same period, with the resumption of economic activities as lockdowns are gradually lifted and vaccines are being approved in multiple countries. The outperformance of Arvinas can be attributed to positive findings from a phase 1 study of its treatment for breast and prostate cancer. ARVN stock is also up 6x from levels of $13 seen in early 2019, two years ago.

Some of the 6x rise of the last 2 years is justified by the roughly 3x growth seen in Arvinas’ revenues from 2018 to 2019. However, the company saw a 250% growth in total shares outstanding due to share issuances, resulting in a 14% decline in revenue per share (RPS) to $1.30 in 2020, compared to $1.52 in 2018. What explains the 6x rise in the stock price is primarily the expansion of its P/S (price-to-sales) ratio. We believe the stock has rallied meaningfully and it is likely to see downside after the recent uptick. Our dashboard, ‘What Factors Drove 537% Change in Arvinas Stock between 2018 and now?, has the underlying numbers.

Arvinas’ P/S multiple changed from 8x in 2018 to 32x in 2019. Now that the company’s P/S has expanded to 63x, there is a potential downside risk when the current P/S is compared to levels seen in the past years, such as the P/S of around 8x seen in 2018.

So what’s the likely trigger and timing for downside?

Arvinas has been focused on the oncology pipeline for prostate and breast cancer treatments. The company does not have any marketable products currently and it generates revenues primarily from collaboration with other pharmaceutical companies. The revenues have grown from $14 million in 2018 to $43 million in 2019, but declined to $24.5 million over the last twelve month period.

Arvinas is working toward a new class of drugs based on targeted protein degradation. The company is currently working on two major programs – ARV-471 and ARV-110 – which are developed using the company’s Protac platform. ARV-471 is in a Phase I study for locally advanced or metastatic estrogen receptor (ER) positive HER2 negative breast cancer, while ARV-110 is in the dose escalation portion of a Phase I-II trial in men with metastatic castration-resistant prostate cancer. It has seen positive results from early trials for its prostate as well as breast cancer candidates, something that has kept the stock price buzzing. It does make sense given oncology is a high value market and a single drug approval in this space would mean a significant growth in the company’s sales from the $43 million currently. For perspective, ARV-471 and ARV-110 combined have the potential of peak sales of over $6 billion. That said, the treatment is still in the very early stages of clinical trials, implying there is still some time before the drug can even move to late stage trials, let alone file for approval subject to a positive outcome of the upcoming studies. And the recent stock price growth means that some of the positives are already priced in at the current price of $82.

Going by the consensus revenue estimate of $24.8 million in 2021, Arvinas stock is trading at 128x its RPS of $0.64, which appears to be very high. However, looking at the P/S for Arvinas is not helpful given the company doesn’t have any marketable product yet, and it is more of a story of exciting products in the pipeline. Now that the stock has seen a strong run up over the recent months, and given that the company is far away from any significant revenue growth, we believe that it is vulnerable to downside risk. However, any positive outcome on the trials related to the company’s prostate and breast cancer treatment candidates will likely result in stock price growth.

What if you’re looking for a more balanced portfolio instead? Here’s a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

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