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Is Dendreon Corp. (DNDN) Rounding Into Shape?

 January 15, 2013 01:25 PM
 


(By Rich Bieglmeier) Dendreon Corp. (DNDN) was one of the most accumulated stocks last week according to our weekly money flow report. The one time high flying biotech saw 1.5% of its market cap added to portfolios around Wall Street.

Following an upgrade from Sanford C. Bernstein, the level of interest for DNDN spiked on Friday and Monday. The broker lifted its price target from $7 to $10 based on an improved outlook for Dendreon's prize drug, Provenge, which is used for the treatment of prostate cancer.

Friday's upgrade generated one of DNDN better trading days in the past 12 months. Friday's volume 31,674,700 shares was the third best day in the past year, and Monday's 21,941,600 the sixth best day.  It's been our experience that massive volume surges precede price surges, but not always.

[Related -Futures Down As Market Awaits Economic Data; Research In Motion Ltd. (BBRY) Plunges]

Think about it this way. The biotechnology company has a float of (shares available for trading) 145 million shares. The sum of Friday's and Monday's volume represents roughly 37% of available stock. All those new shareholders have a cost average between $5.73 and $6.69. They'll be reluctant to sell at current levels, which should give DNDN plenty of support.

While we are on the float, Dendreon has plenty of detractors, the drug is "too expensive" and "too few people can benefit from Provenge," as a result, almost 30% of the float is sold short.

[Related -Futures Rise Ahead Of Italy Result; Barnes & Noble (BKS) Jumps]

Many of the shorts might consider covering their shorts. Looking at DNDN's stock chart, we see a rounding bottom, which is marked by volume in the shape of a bowl. From August 2012 through the first couple of days of 2013, Dendreon's stock traded no higher than $6. That changed on Friday, and now resistance at $6 should turn to support. While Sanford C. Bernstein see $10 as its price-tag, the chart shows technical debris at $7.80ish and again at $9. Traders will have to clean up the mess at these levels before $10 can be achieved.

If demand for Provenge and other catalysts materialize, Dendreon's has plenty of headroom to move based on price-to-sales. At the moment, DNDN trades at 2.241 times sales, a nudge higher than its five-year low of 1.679, which was achieved last September. Meanwhile, the average bio is valued at 8.15 times sales.

It's difficult to measure DNDN against it peers outside of a P/S basis as the company is losing money, and analysts forecast that unfortunate trend to stay intact throughout 2013. Sales are expected to rise by 15% in 2013; so, the increasing top line should show up in price-to-sales' valuation.

Overall, iStock prefers profitable companies for long-term holdings. Short-term investors might find Dendreon Corp. (DNDN) price pattern attractive provided the price stay to the better side of $5.80ish.

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