A comment on Valeant – November 8, 2016

I am not surprised by the continuing steep decline in the price of Valeant. In the case of Valeant, the potential bottom is zero. This is because its debt may be larger than the market value of its assets.

In late July 2015, several weeks before it peaked, I added Valeant to this site as a Sell at U.S. $253.91 or Canadian $331.

I noted then that “I rate this a Sell based on valuation and also the fact that I have trouble trusting management due to their aggressive approach to calculating adjusted earnings or “cash EPS” and also their aggressive approach to avoiding income tax.”

Subsequently I learned how they were so aggressive in raising prices (I was initially unaware of that as price increases were barely mentioned in their annual report) and it seemed clear that they were even more unethical than I had thought.

By the end of 2015 it was down about 60%. As of now it is down 94% (6% more from the original price and we hit zero).

On March 15, 2016, I mentioned that Valeant could conceivably go to zero.

On August 9, 2016 with the price at Canadian $36.88 I mentioned: “I note that Valeant jumped after saying  it will sell assets to reduce debt. I would not get too excited about that until we see if they can sell assets for more than they paid or not.”

Today, it is clear that their asset sales will indeed involve huge losses. I have not updated my analysis but given their huge debts compared to equity, I would think that insolvency is possible.

Valeant was one of those cases where it seemed predictable that the stock would fall. And it was clear to me that there were reasons not to trust management. It has played out worse than I expected when I first looked at it, but from the outset it was clear to me that it was risky due to its very weak balance sheet and my concerns about the ethics of management.