Is Madrigal Pharmaceuticals Inc (MDGL) On The Right Side Of Disruption?

Madrigal Pharmaceuticals Inc (NASDAQ:MDGL), a USD$539.56M small-cap, operates in the healthcare industry, which continues to be affected by the sustained economic uncertainty and structural trends, such as an aging population, impacting the sector globally. The demand for new drug development to meet new or persistent chronic illnesses, as well as the ongoing need for biotech drugs as Baby Boomers continue to age, are growth drivers for the optimistic outlook for the biotech industry in the long run. Healthcare analysts are forecasting for the entire industry, negative growth in the upcoming year , and a massive 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. Is the biotech industry an attractive sector-play right now? In this article, I’ll take you through the sector growth expectations, as well as evaluate whether MDGL is lagging or leading its competitors in the industry. Check out our latest analysis for Madrigal Pharmaceuticals

What’s the catalyst for MDGL’s sector growth?

NasdaqCM:MDGL Past Future Earnings Nov 23rd 17
NasdaqCM:MDGL Past Future Earnings Nov 23rd 17
New R&D methods and big data analytics 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. MDGL lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means MDGL may be trading cheaper than its peers.

Is MDGL and the sector relatively cheap?

NasdaqCM:MDGL PE PEG Gauge Nov 23rd 17
NasdaqCM:MDGL PE PEG Gauge Nov 23rd 17
The biotech industry is trading at a PE ratio of 27x, higher than the rest of the 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 MDGL’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge MDGL’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

Are you a shareholder? MDGL has been a biotech industry laggard in the past year. If your initial investment thesis is around the growth prospects of MDGL, there are other biotech companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how MDGL fits into your wider portfolio and the opportunity cost of holding onto the stock.

Are you a potential investor? If MDGL has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its biotech peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at MDGL’s future cash flows in order to assess whether the stock is trading at a reasonable price.

For a deeper dive into Madrigal Pharmaceuticals’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.