Simulations Plus, Inc.

SLP Details

Simulations Plus, Inc. (NASDAQ: SLP) is the producer and developer of modeling and simulation software for drug discovery and development processes by predicting the properties of molecules using artificial intelligence and machine learning-based technologies. SLP also provides consulting services ranging from the early drug discovery processes through data analysis of preclinical and clinical trials to the submission of products to regulatory agencies. The company’s software business is the major contributor to the total revenues. The company provides eleven software products for pharmaceutical research and development. As of June 02, 2021, the company’s market capitalization stood at USD 1.03 billion.

USFDA DILIsym License Renewal: On April 20, 2021, the company announced that U.S. Food and Drug Administration (USFDA) renewed its licenses to DILIsym software. The renewal indicates the value accruing to USFDA by maintaining access to the DILIsym software in-house. Findings from DILIsym modeling can be an important part of the weight of evidence supporting the liver safety of new drug candidates.

Strong Q2FY21 Results: The company reported a 27.02% increase in total revenue to USD 13.14 million in Q2FY21 (ending February 28, 2021) compared to USD 10.35 million in Q2FY20 (ending February 29, 2020). The software licenses segment contributed 59.53%, while the consulting services segment contributed 40.47% of the total revenue during the quarter. In addition, the company reported a 49.34% increase in net income to USD 3.21 million in Q2FY21 compared to that of USD 2.15 million in Q2FY20.

Second Quarter Revenue Composition (Source: Earnings Presentation, April 12, 2021)

Key Risks: The company faces strong competition for its software products in the life-sciences market. The company also faces intense competition from the open-source software initiatives, in which developers post the software and intellectual property free over the internet. Any decrease in demand for the company’s technology products and services may harm its financials.

FY21 Guidance (Source: Earnings Presentation, April 12, 2021)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Data Source: REFINITIV, Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

SLP Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: SLP’s share price has declined by 16.75% in the past three months and is currently tending towards the lower end of the 52-week range of USD 46.77 to USD 90.92. The stock is currently trading below its 200 DMA levels. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 47.40. Considering the correction in the stock price in the past three months, strong balance sheet, decent fundamentals, associated risks, and current valuation, we recommend a “Watch” rating on the stock at the closing price of USD 51.82, up by 0.76% as of June 03, 2021.

* The reference data in this report has been partly sourced from REFINITIV.