Olympus stock market
Notwithstanding its current scandals, including another legal battle with ex-CEO Michael Woodford who famously blew the whistle on the company's massive accounting scheme inOlympus is highly overvalued.
Shares trade at a hefty premium, considering securities litigation costs coming down the pipeline for Q4 FY Imaging division and non-core subsidiaries continue to drag on sales and earnings.
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With so many ongoing investigations by the DoJ regarding the TJF-QV superbug outbreak, the fate of this company and its finances are entirely unpredictable. Ultimately, creditor-run management's corporate governance and defensive measures are well-intentioned but reveal the company's true value to foreign investors. Following a high-profile accounting scandal, which ended with the arrest of three of its former executives, the company's duodenoscopes, utilised for a non-routine procedure known as endoscopic retrograde cholangiopancreatography, or "ECRP", became a main driver of profit for the company, with more thanof the procedures performed every year in the U.
However, all is still not well with this now creditor-run medical giant, as just in the past few weeks, it has come to surface that ex-CEO Michael Woodford has re-opened his case against Olympus for alleged "breach of contract" and U. Congressman Ted Lieu has publicly implored the SEC to investigate the company on securities fraud charges for failing to inform hospitals and regulatory officials of the difficulties of cleaning the duodenoscopes after more than 13 patient deaths and total incidents related to the tainted devices.
Starting with simple valuation metrics and moving toward more complex catalysts, we shall examine the case for shorting Olympus in Taking a quick glance at the surface of Olympus's balance sheetthere are actually quite a few positive developments to report, such as an increase in valuable assets in the Medical Business division, higher inventory turnover, and an overall reduction in debt.
Perhaps most significant is the fact that the company has been able to reduce its staggering debt-equity ratio down to However, the company is nowhere near a "growth" trajectory yet; if anything, Olympus management still has to employ a crucial stage for the company to develop properly, and that is to continue to reduce its Imaging division assets. Olympus' Imaging division has been a drag on profits for several years; in such a highly competitive field with players of far greater caliber, it is really no surprise.
Any tepid growth in sales for medical or scientific products has been counteracted by an equal and opposite decline in sales for imaging products, such as the SLR mirrorless cameras. As stated by the company's own management team, its goal has been to restructure following the accounting scandal, rebuild trust, and prioritize shareholder value. The key phrase here is "capital efficiency" because, as explained further below, that is the best that the current management can hope to achieve with all of the external pressure damaging the company's earnings potential.
The following valuation metrics will be evaluated to see if the company is truly meeting its performance targets:.
Olympus's return on invested capital has achieved steady progress but remains suppressed, partially due to efforts to reduce debt and poor operating income.
The formula Olympus uses to calculate "ROIC" is as follows: As represented in the chart below, returns on invested capital have increased while actual capital has decreased; this primarily has to do with Olympus cutting debt while simultaneously downsizing assets to refocus on its core medical services. This represents a positive development and that management is taking steps in the right direction. The only financial metric to meet its intended target so far, operating margin has been steadily increasing since ; it now stands at Thanks to increased sales in the Medical Services division and continued cost-cutting measures in the Imaging division, operating income has grown at an impressive CAGR of As an example, through the closure of just one manufacturing plant in the Philippines, the company was able to improve its operating margin in the Scientific Solutions division from 5.
This trend is going to continue as the company continues to alter manufacturing facilities in order to comply with FDA regulatory measures.
Currently, Olympus has multiple FDA files relating to the design of its devices, such as the TJF-QV duodenoscope, that must rectified by changing the manufacturing process of such devices.
The company at least recognizes that forced increased investing activities from poor design and medical equipment regulatory measures will continue to put a damper on any potential cash flow. In management's own words, " Unfortunately, Olympus' return on equity is still dismal, with the five-yr average at Thankfully, the company has reduced its debts considerably, allowing for a better debt-equity margin, but, as a result of having to post an "extraordinary" loss due to the U.
Anti-Kickback Act investigation, negative ROE of It's hard to say whether to include net income or not in indicating the company's future value to investors because there are many external factors relating to its checkered past that continue to weigh down on net income, including litigation fees in resolving the Tobashi accounting scheme with the U. Department of Justice, damages to former employees and executives such as Michael Woodford, and ongoing efforts with the FDA to replace the faulty older-model TJF-QV duodenoscopes that have caused numerous superbug outbreaks across the U.
It wouldn't take a genius to figure out that these ongoing issues will continue to hurt the company's bottom line most of all; however, as such, to use this metric to predict the growth trajectory or inherent value of the company would be inappropriate.
It would not be entirely inaccurate stock market bumper stickers suggest that Olympus has in some respects become a mere appendage of its Japanese creditor banks - Tokyo-Mitsubishi UFJ NYSE: MTU and Sumitomo Mitsui Banking NYSE: From an investment standpoint alone, both financial institutions have an enormous financial stake in the company's survival, with 3.
This is olympus stock market reflected in the composition of some of its current uganda shilling forex rates, as presented below. As international shareholder advisory firm ISS Proxy Advisory Services warned back in Kimoto and another director, Hideaki Fujizuka, who is affiliated with creditor, Bank of Tokyo-Mitsubishi UFJ, could both be likely to act in the black scholes call option price derivation of banks over the interests of ordinary shareholders.
Even with the confidence in knowing the company now employs a large number of outside directors and independent foreign auditors to ensure the quality and accuracy of its financial statements, there is no telling what exactly these how to get free money on psn store banks have done in order to prevent Olympus from insolvency, i.
With this knowledge alone, it is hard to argue that Olympus management will ever act truly in the best interests of its shareholders, especially considering, as per the latest consolidated financial statement, a significant cash makevastcash.com vast vast part of the management's agenda.
This should represent a red flag for shareholders for several reasons: As long as this clause is renewed, Olympus management is identifying itself as ineffective.
Perhaps the most critical factor in determining whether Olympus will be able to succeed i. Current securities investigations include but are not limited to the following examples:. The Tobashi accounting scandal that resulted in the jailing of three of its former executives still continues to this day.
Dept of Justice relating to the U. Anti-Kickback How much earnest money is needed and U. Regarding the Anti-Kickback Act, it is implied that Olympus U.
The consequencesif convicted, are steep. Violators can also be excluded from federal healthcare programs. As stated earlier, Olympus is also under investigation and heavy public scrutiny for its actions related to its model TJF-QV duodenoscopes and an outbreak of highly lethal antibiotic-resistant bacterial infections.
After it was revealed more than 13 patient deaths and total incidents related to the devices had been catalogued by the FDA, public outcry arose and federal investigations began.
Olympus's actions regarding the outbreaks have been highly inappropriate, as if the company were inviting litigation upon itself. For example, after nearly 16 patients contracted Pseudomonas aeruginosa infection, of which some resulted in hdfc currency trading abscesses, get a bonus for signup up for binary options free undergoing an endoscopic procedure with Olympus's devices, the company failed to formally report the information to the FDA until even though it was aware of the outbreaks in May of Under the law, companies are supposed data entry work from home long island submit an individual MDR report for each incident within 30 days.
To suggest, Olympus, a multi-national leader in the medical services industry, would be unaware of the statute would be highly unlikely; rather, it seems the company was extremely negligent. As recently olympus stock market January 13th, the U. Senate Health Committee conducted an international investigationlinking the devices to more than cases in four separate countries.
Congressman Ted Lieu of Los Angeles has recently made public his decision to formally request the SEC to investigate the company on securities fraud charges for failing to inform hospitals and regulatory officials of the difficulties of cleaning the duodenoscopes.
As illustrated in the graphic below provided by MediVisuals, inOlympus illegally changed the design of forex renko bars elevator wire channel in the device in an attempt to eliminate the need to manually clean the area.
Without FDA approval, Olympus, along with its rivals Fujifilm OTCPK: FUJIF and Pentax OTCPK: HOCPF began selling these altered devices, as the TJF-QV and ED TK respectively. Now, it seems that decision will prove an extremely unwise gamble. On January 16th, it was reported by The Japan Times that ex-CEO Michael Woodford had reopened his case against Olympus, likely relating to the settlement reached between the two parties, the result of which was the U.
Serious Fraud Office dropping the investigation in November for insufficient evidence. Woodford, who settled a employment suit with the firm for an undisclosed sum, filed the claim Thursday, according to court records.
Woodford confirmed the lawsuit when contacted by telephone but declined to comment further. It is likely that some contention arose if either Olympus had not maintained the conditions of the settlement or Mr. Woodford decided for whatever reason to reopen the case. Below, we can observe some of the official statement of the costs of ongoing litigation. It is costly to say the least; in FY, had these losses not arisen, the company would have been able to post a net income as opposed to a net loss.
Yet, the transmission of infectious material from patient to patient during ERCP, although uncommon, represents a serious public health concern.
Currently, the only reason the FDA and other federal agencies haven't pursued further action against Olympus, i. Both Fujifilm and Pentax are also in hot water no pun intended with the FDA over the quality of their duodenoscopes, manual reprocessing procedures, etc. Pentax is also far more financially healthy than Olympus.
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This may give Pentax the edge in the swiftly growing medical market in emerging market countries that will prioritize price over quality concerns. Concerning price, Olympus also faces significant long-term pressure because of a growing trend in the U. The influence of GPOs group purchasing organizations and IDNs integrated delivery networks has grown in recent years; as such, Olympus has been forced to create a specialized sales force to engage with the groups.
For the company, finally engaging with these groups is a double-edged sword; while it will open up Olympus's products to many new buyers and contribute to rapid sales growth, it will also simultaneously exert significant downward pressure on prices due to the influence of these organizations.
How these organizations could affect future income remains to be seen. Despite all of the constant legal and regulatory woes, recent progress in the Medical Business division has risen steadily; as such, this is a possible upside risk that may drive shares up as expectations for future growth are priced in by investors.
As a percentage of sales, research and development expenditure has increased significantly; Olympus is wisely spending to keep ahead of its competitors in the medical services field. In the therapeutic devices field, there was growth in sales of the "QuickClip Pro" disposable rotatable clip fixing device, which is used to arrest bleeding of polyps, lesions, etc.
As a result, sales increased in all fields, driving an increase in sales in the Medical Systems Business.
There is significant risk for a short position in Olympus as the pricing of its shares are largely supported by sales growth and future sales expectations despite its overvaluation relative to its earnings. This is a factor to consider before opening a short position; this will be examined further below. Let's evaluate the technical details for shorting Olympus in Arguably, for the company, price-to-sales ratio is the most important indicator regarding its valuation.
Since the start of the fiscal year Mar. As for the reasons, Olympus is currently so highly valued, I have identified several probable causes for this phenomena:. If litigation costs hit earnings projections as I believe they will, Olympus's shares could take a major hit. So, there is plenty of market mispricing here to take advantage of. A "house of cards" is an apt metaphor for how institutional investors have negligently propped up Olympus.
In order to express this "short" view of Olympus, one would need to perform a traditional short, i. As OCPNY and OCPNF are "OTC" over-the-counter products for foreign equities, there is no immediate availability to trade options contracts i.
As such, per SEC regulatory procedure, in order to technically utilise "short" options strategies, e.
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All financial information displayed provided by Olympus unless otherwise noted. This article contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. Options strategies on foreign equities entail significant risk including but not limited to credit, liquidity, and expenses. Under the Securities Exchange Commission regulation, only qualified institutional buyers have the right to purchase or sell foreign equity options contracts.
Long Ideas Short Ideas Cramer's Picks IPOs Quick Picks Sectors Editor's Picks. Summary Notwithstanding its current scandals, including another legal battle with ex-CEO Michael Woodford who famously blew the whistle on the company's massive accounting scheme inOlympus is highly overvalued. Want to share your opinion on this article? Disagree with this article? To report a factual error in this article, click here. Follow David Deuchar and get email alerts.