Application of Stock Valuation Methods
How Low Can It Go?
Dwayne sat at his desk wondering what he should do. Having opted for early retirement, six months ago, he knew that he needed to make some changes in the way his investment portfolio was structured.
However, being primarily focused on science during his career, he had a fairly limited knowledge of stock selection and portfolio management.
One thing was certain, though, Dwayne had an eagerness to learn and that's exactly what he planned to do during his appointment with his broker, Jonathan price.
Dwayne Stevenson. Aged 58, had joined the Pharmacopeias Company approximately 30 years ago, as a post-doctoral researcher in the field of immunology. His strong work ethic and knowledge of science enabled him to progress steadily along the research track of the company. He won a number of awards and earned many promotions along the way. Five years ago, Dwayne earned the coveted title of "Research 5 Scientist" enjoyed by only 4 other individuals in the corporation.
One of the main advantages of gaining the research 5 statuses were that he was given stocks options as part of his remuneration package. At that time, shares of Pharmacopeias (PCU) were trading at $30 per share. The company had annual sales in excess of $5 billion and the sales and earnings growth forecasts for the next few years were good. The company had applied for food and drug administration (FDA) approval for two highly promising drugs and had a number of other in the pipeline.
However, as luck would have it, about 3 years later, the firm suffered a few setbacks. The FDA did not approve a couple of its applications and Pharmacopeias was being investigated by the environmental protection agency (EPA) for possible dumping violations. Besides, the patents of two so its best selling drugs expired and the generic versions began to flood the market. Needles to say, the firm's sales began to suffer and profits began to shrink sending its stock...