Tuesday, July 31, 2007

Arena Pharmaceuticals Inc.

Arena Pharmaceuticals Inc. is a NASDAQ listed security that has been trading in a range between $9.40 and $17.69 over the past year. With 60,954,500 shares outstanding, a recent price of $11.74 gives a total market capitalization of $714,996,257. While there are certainly larger companies, Arena Pharmaceuticals Inc. has definitely earned its place in the pack. Last year, Arena Pharmaceuticals Inc. created $-2.12 in earnings for every share outstanding.

Arena Pharmaceuticals Inc. is currently priced by the market at 0.00 times last year’s earnings. Many trading multiples around the world are quite attractive these days, but don’t be fooled. A Price to Earnings ratio of 0 simply means that the security didn’t make any money last year.

With a share price under $50 a share and earnings per share below $1 a share, Arena Pharmaceuticals Inc. is unlikely to be an interesting value proposition. Consistent earnings are the key to high valuations and this security is not on its way.