iBio Inc (AMEX:IBIO), a USD$32.96M small-cap, operates in the healthcare industry, which has experienced tailwinds from issues such as higher demand driven by an aging population and the increasing prevalence of diseases and comorbidities. 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, a relatively muted growth of 6.42% in the upcoming year, and a massive 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 IBIO is lagging or leading its competitors in the industry. See our latest analysis for IBIO
What’s the catalyst for IBIO’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%. IBIO leads the pack with its impressive earnings growth of -36.08% over the past year. This proven growth may make IBIO a more expensive stock relative to its peers.
Is IBIO and the sector relatively cheap?
The biotech industry is trading at a PE ratio of 31x, above the broader US stock market PE of 22x. This illustrates a somewhat overpriced sector compared to the rest of the 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 IBIO’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge IBIO’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? IBIO recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto IBIO as part of your portfolio. However, if you’re relatively concentrated in biotech, you may want to value IBIO based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If IBIO has been on your watchlist for a while, now may be the time to enter into the stock, if you like its ability to deliver growth and are not highly concentrated in the biotech industry. However, before you make a decision on the stock, I suggest you look at IBIO’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 iBio’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.