The thesis

Harmony Biosciences is a commercial-stage pharmaceutical firm treating rare neurological conditions. The company has a gross margin of 76.55% and revenue growth of 16.6% year-over-year. With a conviction score of 38, the setup is interesting due to the disconnect between the analyst consensus rating of BUY and the company's undervalued metrics, such as a P/E of 14.1x. The net margin of 16.20% also indicates a profitable business model.

Why now

The current macro context, with the US-China squeeze and Middle East war, creates uncertainty that may impact HRMY's valuation. The recent criticism of Biden's oil reserve management and the resulting 43-year low in oil reserves may lead to increased scrutiny of pharmaceutical companies, making HRMY's undervaluation more pronounced.

What to watch

The company's revenue growth and gross margin over the next two quarters will be key indicators of its ability to maintain its current trajectory. The upcoming earnings report and any updates on the WAKIX prescription medication will also provide insight into HRMY's future prospects and potential catalysts for growth.

Key risks

Valuation risk is a concern, as the DCF intrinsic value of $117 may not be realized if the company's growth slows. Execution risk is also present, as HRMY's ability to maintain its high gross margin and revenue growth is crucial to its success. Competitive risk from other pharmaceutical companies entering the rare disease market is another potential threat.