Looking At Earnings From Harmony, Pinterest, and Paycom

Let’s take a quick look at recent earnings reports from a few of our followed stocks.

Harmony Biosciences (HRMY)

Harmony continues to put up good results, and the stock looks quite undervalued to me. Wakix sales grew 30% year-over-year, pretty impressive for an orphan drug in its 4th year of commercial sales. The firm continues to build out the lifespan for Wakix, with an FDA filing for pediatric narcolepsy set for next month, phase 3 studies for a Prader-Willi indication underway, and a push forward to file a new drug application for usage in idiopathic hypersomnia (IH), which has been in question after missing primary endpoints in a Phase III study. All told, Wakix could ultimately be a blockbuster $1-2B annual drug.

Management continues to attempt to diversify what is now a "one drug pony". This quarter it announced a partnership with Bioproject to develop TPM-1116, a more potent treatment for Harmony’s sleep disorder focus. This one is a way off, with human studies not even commencing for another year or so. But it does add to the pipeline.

Finally, Harmony acquired Epygenix Therapeutics, whose lead product EPX-100 is a treatment for Draven syndrome (epilepsy). Its advantage over current treatments is an improved benefit-to-risk profile. It has already won orphan designation and patent protection into the mid-2030’s, but it will still be a few years until commercialization (if all trials go well).

So that’s a lot, but bottom line, Harmony continues to execute along our thesis, with excellent results from its commercial Wakix development and a build-out of the clinical pipeline. I’m raising the fair value to $65 from a previous $60.

Pinterest (PINS)

Pinterest had a very strong quarter that set the stock jumping. Q1 sales grew 23% year-over-year, and monthly active users increased 12% to 518 million. Both of those were the best results from the firm since 2021. The positives were broad, with strength across all geographies. I was also impressed with free cash flow results - the firm has generated an impressive 24% cash flow margin in its training 12 months, far above our modeling of 18%.

Pinterest has always been a great idea that needed to find a winning monetization strategy. With two great reports in a row, it looks like it may be doing just that. Is time to adjust the valuation assumptions upwards, and doing so leads to a healthy bump in the fair value, to $29 from $23 previously. The stock still trades a good bit ahead of that after earnings. It will remain on the Watch List.

Paycom (PAYC)

At this point, Paycom remains one for far-sighted investors, as the market doesn’t usually price stocks for much more than 6 months of expectations at a time. Paycom will be working through difficult revenue comparisons as it ramps up its Beti platform, which saves customers a lot of money by eliminating payroll corrections, but at the expense of hurting Paycom revenues from those corrections! Long-term, doing right by your customers is a winning business strategy.

There were no big surprises in Q1. Revenues were up 11%, right about as expected. Additional automation capabilities, world-class service, and client ROI were stated as its 3 biggest goals going forward - all things we want from companies we own. Cash flow results were right as expected, and the balance sheet remains debt-free. The fair value target gets a very minor reduction down to $283. Still, Paycom looks very attractively valued at present and sits on the Buy Now List.