Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Biotech product pioneer Techne Corp (NAS: TECH) popped 10% higher this morning on earnings that, according to Briefing.com, met estimates for profits but exceeded revenue expectations.
So what: This was Techne's last quarterly report of its 2011 fiscal year, so let's focus on the full-year numbers. Earnings were up 2% to $3.02 per share, or 10% "adjusted" for one-time events. Sales increased 8% for the year, of which 6% was organic growth.
Now what: Techne's that rarity in the biotech world -- a profitable business. The company's product line includes such esoteric items as cytokines, enzymes, as well as devices used to measure the health of animal and human patients. With gross margins that average in the high 70s, it's also a profitable business. Unfortunately, one thing Techne has in common with so many other biotechs is ... its high price, and unreasonable valuation.
Based on today's numbers, the stock currently costs 26 times earnings. But Techne is only expected to grow these earnings at about 12% per year over the next five years, and the company pays only a modest 1.4% dividend yield to help make up the difference. Free cash flow at the company is unremarkable, basically tracking reported net income.
In short, it's a good business that had a good year -- but priced like an excellent business that just had a blowout year. Not everyone agrees with me about Techne; indeed, Motley Fool Stock Advisor has actually recommended buying the stock. Still, my advice today would be: Count your winnings, and be happy with them. Just don't expect much more from the stock from here on out.
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At the time thisarticle was published Fool contributorRich Smithdoes not own (or short) shares of Techne Corp. The Motley Fool has adisclosure policy. Motley Fool newsletter serviceshave recommended buying shares of Techne. Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
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