Simulations Plus, Inc.

Simulations Plus, Inc. (NASDAQ: SLP) is a leading provider of modeling and simulation software for drug discovery and development that uses artificial intelligence and machine learning to predict the features of molecules. It also provides consulting services ranging from early drug discovery from preclinical and clinical trials to regulatory submissions for product approval.

Key Highlights

• The company reported a 14.28% increase in revenues to USD 36.63 million during 9MFY21 (ended May 31, 2021) compared to USD 32.05 million during 9MFY20, due to an increase in software-related sales.
• SLP has USD 119.76 million in cash and cash equivalents (including short-term investments) as of Q3FY21, with no outstanding debt, indicating a robust balance sheet.
• The company paid the former shareholders of Lixoft an earnout payment of USD 2.0 million (two-thirds in cash and one-third in newly issued ordinary shares) in June 2021, in accordance with the provisions of the Lixoft acquisition agreement (acquisition closed on April 1, 2020).
• SLP declared a quarterly cash dividend of USD 0.06 per share, payable on August 02, 2021, to shareholders of record on July 26, 2021.
• SLP reported an improvement in EBITDA margin to 42.5% in Q3FY21 vs. 33.4% in Q2FY21.
• SLP released IPFsym version 1A, a pharmacology modeling software, on June 17, 2021, to aid in the discovery of medicines for idiopathic pulmonary fibrosis.
• As of Q3FY21, the company expects its full-year FY21 revenue to increase by 5 to 10% over the prior year.
• Stock trading below its crucial long-term as well as short-term support levels of 50-day and 200-day SMA levels.

Technical Price Chart (as of July 30, 2021). Analysis by Kalkine

Conclusion: SLP’s share price fell by 40.37% in the past six months and is currently at the lower-band of the 52-week range of USD 42.02 to USD 90.92. However, despite the significant decline in share price in the past six months, we believe the current valuation (FY22 P/E of 80.25x, FY23 P/E of 62.77x) adequately reflects the robust business fundamentals (healthy balance sheet, new product launches, and positive outlook) and have chosen to remain on the sidelines. Therefore, we recommend a “Watch” rating on the stock at the closing price of USD 47.19, up 0.23% as of July 30, 2021. 

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

PetMed Express, Inc.

PETS Details

PetMed Express, Inc. (NASDAQ: PETS) is a leading pet pharmacy in the United States. PETS sells prescription and non-prescription pet medications, health items, and supplies directly to clients for dogs, cats, and horses. Around 3,000 Stock Keeping Units (SKUs) of the most popular pet pharmaceuticals, health items, and supplies make up the company's current product line. The pet pharmacy sells its products through advertising campaigns to raise awareness of its ‘1-800-PetMeds’ and the ‘PetMeds’ brands. The majority of the company's revenue comes from internet sales. As of July 30, 2021, the company’s market capitalization stood at USD 621.46 million.

Change in Management: On July 03, 2021, the company appointed Bruce S. Rosenbloom, CFO, as the Interim CEO and President of the company. On May 28, 2021, the Board of Directors notified its then CEO and President, Menderes Akdag, that his employment agreement will not be renewed and will terminate on July 30, 2021, as planned.

Q1FY22 Results: The company reported a 17.56% decline in sales to USD 79.31 million in Q1FY22 (ended June 30, 2021) compared to USD 96.20 million in Q1FY21, owing to the re-opening of retail stores and abating of the COVID-19 pandemic during the quarter, which facilitated increased online buying in Q1FY21. In addition, PETS reported a decline in net income to USD 4.43 million in Q1FY22 compared to USD 7.77 million in Q1FY21. As of June 30, 2021, the company had cash and cash equivalents of USD 111.79 million with no outstanding debt. The company declared a quarterly dividend of USD 0.30 per share, payable on August 13, 2021, to shareholders of record on August 06, 2021.

Key Risks: While the company ships pet medications to customers in all 50 states, customers in California, Florida, Texas, New York, Pennsylvania, North Carolina, Georgia, and Virginia accounted for approximately 51% of its sales in FY21. If the company's license to operate a pharmacy in any of these states is revoked or suspended for any reason, or its ability to sell prescription medications to residents of these states ceases, its financials and cash flows could be adversely impacted.

Outlook: PETS anticipates higher reorder sales in H2FY22, as more prescriptions are expected to be renewed. In its Q1FY22 report, the company stated that its capital expenditure for the remainder of FY22 is expected to be around USD 1.50 million, most of which will be spent on the improvement of its e-commerce platform.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(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.

PETS Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: PETS share price rose 13.04% and in the past one week and is currently trading at the lower-band of the 52-week range of USD 24.75 to USD 57.00. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 53.76. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 33.72. Considering the decline in top and bottomline in Q1FY22, healthy balance sheet, dividend yield, positive outlook, and associated risks, we recommend a “Hold” rating on the stock at the closing price of USD 31.39, up 2.38%, as of July 30, 2021. 

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

* All forecasted figures and industry information have been taken from REFINITIV.