Capricor Therapeutics Inc (NASDAQ:CAPR), a USD$50.29M small-cap, is a healthcare company operating in an industry, which faces key trends such as rising demand fuelled by an aging population and the growing prevalence of chronic diseases. The growth in development of new drugs for unmet needs, as well as the ongoing and increasing need for biotech drugs as Baby Boomer generation continues to age, are growth drivers for the positive outlook in the biotech industry over the long term. Healthcare analysts are forecasting for the entire industry, negative growth in the upcoming year , and a whopping growth of 44.94% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. An interesting question to explore is whether we can we benefit from entering into the biotech sector right now. Below, I will examine the sector growth prospects, and also determine whether CAPR is a laggard or leader relative to its healthcare sector peers. View our latest analysis for Capricor Therapeutics
What’s the catalyst for CAPR’s sector growth?
Data analytics and other technology-enabled approaches are creating opportunities for innovations, however, stakeholders have been challenged to keep abreast of this structural shift while under pressure to cut costs. Over the past year, the industry saw growth of 8.45%, though still underperforming the wider US stock market. CAPR is neither a lagger nor a leader, and has been growing in-line with its industry peers at around 10.12% in the prior year. However, analysts are expecting the company to accelerate ahead of its peers over the next year, and deliver a 10.61% growth next year. This growth may make CAPR a more expensive stock relative to its peers.
Is CAPR and the sector relatively cheap?
The biotech sector’s PE is currently hovering around 27x, above the broader US stock market PE of 22x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry did return a higher 16.08% compared to the market’s 10.06%, which may be indicative of past tailwinds. Since CAPR’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge CAPR’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? CAPR’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto CAPR as part of your portfolio. However, if you’re relatively concentrated in biotech, you may want to value CAPR based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If CAPR has been on your watchlist for a while, now may be the time to enter into the stock, if you like its growth prospects and are not highly concentrated in the biotech industry. However, before you make a decision on the stock, I suggest you look at CAPR’s future cash flows in order to assess whether the stock is trading at a reasonable price, as well as other important fundamentals such as the company’s financial health in order to build a holistic investment thesis.
For a deeper dive into Capricor Therapeutics’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other healthcare stocks instead? Use our free playform to see my list of over 1000 other healthcare companies trading on the market.