Why Eton Pharmaceuticals Is Top of the Class Today
Key Points
Eton Pharmaceuticals beat on both top and bottom lines last night.
Management is licensing a new drug, and raising guidance through the end of 2026.
Eton Pharmaceuticals (NASDAQ: ETON) stock soared 41.9% through 2:15 p.m. ET Friday after beating analyst forecasts for Q2 with a stick.
Heading into the report, Wall Street had Eton pegged for a $0.15 per share profit on just $26.9 million in sales. Instead, the developer of drugs for rare diseases announced a profit of $0.43 per share -- and $37.6 million in sales.
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Eton Q2 earnings
Eton all but doubled its sales year over year -- 99% growth -- and flipped from a $0.10 per share GAAP loss to a $0.35 per share profit in Q2. (The $0.42 figure was a non-GAAP number.) Free cash flow for the quarter totaled $7.3 million, bringing the company's year-to-date FCF to $14.6 million.
That said, if you subtract out the cost of product licensing rights -- $15 million -- free cash flow would have been negative. This isn't a constant expense for Eton, appearing some years but absent or minimal in others. Still, Eton noted that it has just licensed the rights to infantile hemangioma drug candidate ASN-001 from Auson Pharmaceuticals, so there's an argument to be made that it may become an ongoing expense, and should be subtracted when calculating free cash flow.
What's next for Eton stock
Positive free cash flow or no, investors seem fine with the results -- and with guidance as well.
Eton raised its guidance through the end of this year, predicting revenue will exceed $145 million, well above Wall Street's expected $121 million. The company raised its guidance for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) as well (despite the added expense from ASN-001).
Valued at 94.5 times earnings, Eton's not a cheap stock. But at its current growth rate, it just might be worth the price.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Eton Pharmaceuticals. The Motley Fool has a disclosure policy.