Should I load up on Esperion Therapeutics shares under $2?

Esperion Therapeutics shares have been climbing over the last few days after it presented positive clinical data. So is now the time to buy?

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Esperion Therapeutics (NASDAQ:ESPR) is a pharmaceutical company that develops and commercialises treatments for high cholesterol. And while Esperion Therapeutics shares have seen a volatile trading pattern in recent years, the company has been making major progress. With growing demand, is now the time to be buying?

Why would I be interested?

The pharmaceutical sector can be extremely difficult to get right. Without real expert understanding of the science, investing can be a gamble. Let’s take a look at the fundamentals of the company.

First the niche. The company has developed bempedoic acid, which can be used to treat patients who are unable to tolerate statins, used to lower the level of cholesterol in the blood.

And financial performance? Esperion generated $222m in revenue in 2022, losing $2.08 per share. Obviously this means the company is still not profitable. However, this is projected to change within three years.

As for growth potential. The company is expanding its product portfolio and entering new markets. It’s also aiming to treat a broader range of patients with high cholesterol. And it’s aiming to treat over 100m patients by 2025. Analysts expect the firm’s earnings to grow by 71% over each of the next five years.

On valuation, the shares are currently well below fair value when considering a discounted cash flow calculation. The shares may be 97% undervalued at present. In addition, the price-to-earnings (P/E) ratio of 2.1 times is well below the average of the US pharmaceutical sector at 5.9 times. This presents tremendous potential if the company can execute well for the next few years.

What do I need to watch out for?

As I noted, getting an investment in the pharmaceutical sector right can be very challenging. Through various trials and data releases, a promising product can quickly become a disaster.

At present, Esperion seems to have a winner, presenting positive outcomes in the European Society of Cardiology Congress 2023. This has taken the share price higher in recent days, but with the valuation potentially much higher, this could still just be the beginning.

From a financial standpoint, the company will need to be disciplined for the next year. With less than a year of cash runway, there isn’t much room for mistakes.

There’s always the potential for competition and disruption from other pharmaceutical companies too. And it launched a lawsuit against a partner over a disputed $300m milestone payment Esperion hasn’t received. The company is also particularly exposed to the risk of regulatory delays, being highly dependent on a single product.

However, the key red flag for me is negative equity. This means that the level of debt is about 40% greater than the equity owned by shareholders. With interest rates high, and an uncertain future ahead, investors may be concerned.

Am I buying?

Esperion Therapeutics shares present an interesting opportunity for investors. Clearly the company is in an aggressive growth stage. With concerns around negative equity and lawsuits, many cautious investors wouldn’t want to consider this one. However, I like the idea of buying a small amount of shares, and keeping an eye on developments. I’ll be adding it to my watchlist for the next few months.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Gordon Best has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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