Question

Why did Arena Pharmaceuticals stock drop recently?

Answer 1

The company is a big giant in pharmaceutical business; but recently it suffers lot of things which makes dropping of its share price to around $5. Moreover, the current rating of the company is only D (means poor).

The reason behind it is as follows:

Point 1) Net income: There is no growth in net income since past years; net incomes are declining gradually. The average declining rare is 32% to 35%.

Point 2) Earnings per share (EPS): This is the ratio of “net income” to “average outstanding common shares”; (net income / Average outstanding common shares). In each subsequent year the EPS drops from the earlier year; this thing must not attract investors. In recent quarter it declines almost 33%.

Point 3) Operating cash flow: Such cash arises through company’s main operation and it is a part of cash flow statement. This thing indicates company’s strength in operation. The company has very poor performance in operation recently, as operating cash flow drops in recent quarter to around -$19 million or almost by 5% compare to the similar quarter in the last year. On the other hand, cash generation of the company is very low.