Shareholders in liver cancer treatment specialist Sirtex Medical Limited (ASX: SRX) may be feeling nervous this morning after the company revealed its own chief executive Gilman Wong had sold around $2 million worth of shares in the company.
However, Mr Wong still holds around $7.4 million worth of shares in the company plus substantial performance rights so there's no doubt his interests remain aligned with shareholders. Directors may choose to sell shares for many reasons as like everyone else they will want to diversify their wealth, or raise large sums for one off purchases.
However, CEO selling can be an ominous sign as evidenced this week after Vita Group Limited (ASX: VTG) shares plunged 20% after the company revealed it may face changes to its "remuneration construct" with key business partner Telstra Corporation Ltd (ASX: TLS). Lucky timing then that Vita chief executive Maxine Horne decided to dump 10 million shares just over a month ago completely unaware that its key business partner could soon seek a new deal.
Is Sirtex good value?
Sirtex shares have been on the slide since August after its chief executive declined to provide guidance for financial year 2017's dose sales guidance other than to expect it to be in the double-digit range. Last year the company was forced to downgrade specific guidance and unsurprisingly management don't want to set themselves up for a fall again.
However, markets hate uncertainty and it usually translates into a sliding share price, although I am confident FY17's dose sales growth will come in marginally under last year's growth of 16.4 percent at around 14 percent.
In FY16 Sirtex sold 11,931 doses of its treatment, so a 14 percent lift in FY17 would take it to 13,600 dose sales. This looks a sound estimate and if management were expecting to beat last year's 16.4 percent growth or vary widely from it they would have provided more specific guidance in my opinion.
These forecasts are also in line with analysts' expectations at Macquarie Group Ltd (ASX: MQG) and improving profit margins should see the healthcare operator post earnings per share in the region of $1.10 to $1.20 in FY17.
If we take $1.15 per share in EPS as a mid-point for FY17 the group is trading on around 23x FY17's expected earnings, which means it is not cheap, but reasonable value assuming you believe it can keep growing at double-digit rates out to FY19 and potentially beyond.
Three potential curveballs (or googlies in Australia) include the direction of the US dollar, potential US healthcare changes post its Federal election, and the results of multiple upcoming clinical trials in 2017.
Clearly investors may be in for a bumpy ride over the short term, although I expect this business still offers good long-term value, albeit higher up the risk curve.
