Has Valeant plunged too far?

There has been a lot of controversy over Valeant since October due to the controversy of phantom sales and price gouging. After the litigation from Citrics calling Valeant the next "Enron" fraud, stocks of Valeant have sold off dramatically as shares are now down more than 70% from their peak hit in early August of $262.52. It was recently downgraded to Neutral from Buy by Goldman Sachs with a target price of $128 lowered from $180. However, when a company's stock plunged so much in such a short time, there is a tendency to overshoot on the downside.

It is clear that Valeant has been pursuing aggressive growth strategies of reducing the cost of its drugs through Philidor while boosting the prices through questionable means. While investors have sold the stock as the company needs to cease such suspicious activities, it has now come to a point where Valeant trades at a large discount to its peers and the potential of generating cash flow generating is being ignored. The stock decline suggests investors may be fearing the issue stems from a cash crunch at Valeant, but the Valeant spokeswoman said “there is no cash crunch,” as Valeant will generate enough cash to buy back the entire company and pay off debt in nine years. Stocks of headline risk often sell off to ridiculously low levels, but such market sentiment should dissipate over time and revert back to the fundamentals. As Valeant is no longer trading on its core value in the heat of the moment, I believe Valeant is now potentially an undervalued company worth looking into for long term investors.

-- Miranda Wang