Last night on "Mad Money" Jim Cramer talked about Eli Lilly and Co. (LLY) spinoff Elanco Animal Health Inc. (ELAN) . Cramer likes the long-term secular growth theme of the humanization of pets, but does that mean shares of ELAN are a buy? Jim looked at the fundamentals. Sales have been flat for the past three years -- not something you like to see with an initial public offering (IPO). However, the biggest issue for Cramer was Elanco's valuation, now at 68 times earnings, which makes it expensive.
What does the limited chart of this fresh IPO look like? In this short 5-minute bar chart of ELAN over the past thee days, below, support can be seen in the $34.00-$33.75 area and resistance is above $35.50. The intra-day On-Balance-Volume (OBV) line shows an initial rise and then it remains stable. Buyers came in early and it appears they are holding. What can we glean from this limited chart? I understand from my sources (yes, I have sources) that ELAN was heavily oversubscribed and that could mean institutional buyers will be nibbling on the long side on available weakness in the days and weeks ahead.
Bottom line: Patient investors who are interested in this industry could establish a small position around $33.75.