If bears short-selling Valeant Pharmaceuticals (TSX: VRX) wanted to figure out how their bet went wrong, they need only look at the trading action of bonds to understand what happened.
Valeant bonds are trading at prices and yields found at late-2015 levels. The difference is that this time, the bond prices are on an uptrend. In 2015 when the unknown risks grew, VRX stock consistently traded lower.
Valeant will benefit from the timing of a vote of confidence from investors. The company needs favorable debt interest levels in the near-term while it grows its sales force and keeps R&D costs constant.
Valeant has a number of new products in the market that it launched in 2017. SILIQ, along with premium-level contact lenses from B+L could give Valeant’s revenue a meaningful lift in 2018. When investors deduct revenue that excludes that coming from sold assets, management may beat its own forecasts for the year.
Takeaway
VRX stock rose 43% in 2017 and closed at just below $21. Its stock trades in the single-digit P/E, weight down by high debt and slow growth. But growth is accelerating and debt is getting renewed at favorable terms. This will bode well for VRX stock in 2018.
