NATCO Pharma's Revlimid Story | A small-mid cap pharma stock has plunged >35% in just last week after poor Q3 results | Value BUY or TRAP?

NEVER BUY STOCKS JUST BECAUSE THEY ARE CHEAP WITH LOW PE RATIO. THEY ARE CHEAP FOR A REASON!

This statement might be true for Natco Pharma. Pharma companies in India are rated at PE ratios ranging from 20-50 while Natco which had been doing great since last many quarters was trading at a PE of 11-12.

Many people were compelled to buy the stock just because they couldn't digest a company producing 40% sales growth YOY for 2 consecutive years trading at lower than the sectoral average/median P/E ratio. And yet immediately after the Q3 earnings call, the stock saw another dip and is now trading at 7.5 P/E!

The reason being the 35% dip in revenue as management revealed that they didn't sell the drug Revlimid (which was giving >50% of their topline) in Q3 at all as they had exhausted their allocated sales quota inn US markets as per the agreement in Q2 itself.

But this wasn't revealed to investors in Q2 concall so they kept expecting another quarter with 20% YoY increment, but the reverse happened🤷🏻‍♂️

Now what are your views regarding the company after the recent fall/rerating? The current PE is 7.5 but since the company won't sell any Revlimid in FY27 due to patent expiry in Jan 2026 the future earnings prospects of the company are grim and hence the forward-looking P/E taking into account loss of sales due to Revlimid patent expiry would be many times higher than current PE ratio! Although if they find a new complex generic drug to market in US then it might skyrocket the stock once again!

Link to my analysis in the comments.