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Beware these red flags for Seattle Genetics Inc (NSQ:SGEN)

13th Mar '19 by Jack Brumby

Biotech companies can make investors a fortune, but picking winners and avoiding losers is even more important here than it is in other sectors. Lots of these companies lose money for a long time as they research and develop the treatments that will one day make them profitable.

Take Seattle Genetics Inc (NSQ:SGEN), for example. Seattle Genetics is a biotechnology company focused on the development and commercialization of therapies for the treatment of cancer. For the fiscal year ended 31 December 2018, Seattle Genetics, Inc revenues increased 36% to $654.7M but net loss also rose 77% to $222.7M. In fact, a quick look at the group's trading history shows impressive revenue growth but not a single profit in five years:


So, how much longer can Seattle Genetics continue posting losses? One way to gauge the group's financial health is with the F-Score.

Unfortunately, applying the Piotroski F-Score to this large cap doesn't do much to dispell these concerns... We'll get into this later, but first a quick refresher on what the F-Score means.


The Piotroski F-Score: one indicator to rule them all?

The Piotroski F-Score is made up of nine checks separated into three sections. Its secret sauce is that, unlike most ratios, the F-Score looks more deeply into the direction in which a company’s financial health is moving. Keeping on top of these trends can help us stay ahead of the game.

When it comes to neglected companies, Stanford Finance Professor Joseph Piotroski wanted to sort the wheat from the chaff. After settling on the F-Score, he produced some astonishing results.

Why the F-Score does not like Hurricane Energy (LON:HUR)

Piotroski found that weak stocks with an F-Score of 2 or less are five times more likely to either go bankrupt or delist due to financial problems. Working our way through Piotroski's checklist, we can see that Hurricane Energy gets a lowly F-Score of 2 out of a possible 9. Food for thought for anyone looking to hold onto their money. We can see which areas of the checklist Hurricane fails in the graphic below:


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