Immunomedics Inc (NASDAQ:IMMU), a USD$1.71B small-cap, operates in the healthcare 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, a relatively muted growth of 6.42% in the upcoming year , and a whopping growth of 43.65% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the US stock market as a whole. Is now the right time to pick up some shares in biotech companies? Today, I will analyse the industry outlook, as well as evaluate whether IMMU is lagging or leading its competitors in the industry. See our latest analysis for IMMU
What’s the catalyst for IMMU’s sector growth?
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. In the previous year, the industry endured negative growth of -60.80%, underperforming the US market growth of 4.49%. IMMU lags the pack with its earnings falling by more than half over the past year, which indicates the company will be growing at a slower pace than its biotech peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 64.06% in the upcoming year. This future growth may make IMMU a more expensive stock relative to its peers.
Is IMMU and the sector relatively cheap?
Biotech companies are typically trading at a PE of 31x, 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 15.86% compared to the market’s 9.99%, which may be indicative of past tailwinds. Since IMMU’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge IMMU’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? IMMU’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 IMMU as part of your portfolio. However, if you’re relatively concentrated in biotech, you may want to value IMMU based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If IMMU 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 IMMU’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 Immunomedics’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.