Vascular Biogenics Ltd (NASDAQ:VBLT), a USD$207.44M 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 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. Should your portfolio be overweight in the biotech sector at the moment? Today, I will analyse the industry outlook, and also determine whether VBLT is a laggard or leader relative to its healthcare sector peers. Check out our latest analysis for Vascular Biogenics
What’s the catalyst for VBLT’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. Over the past year, the industry saw growth of 8.45%, though still underperforming the wider US stock market. VBLT leads the pack with its impressive earnings growth of 14.21% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be -5.84% compared to the wider biotech sector growth hovering next year. As a future industry laggard in growth, VBLT may be a cheaper stock relative to its peers.
Is VBLT and the sector relatively cheap?
Biotech companies are typically trading at a PE of 27x, higher than the rest of the US stock market PE of 22x. This means the industry, on average, is relatively overpriced 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 VBLT’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge VBLT’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? VBLT is a biotech industry laggard in terms of its future growth outlook. If your initial investment thesis is around the growth prospects of VBLT, there are other biotech companies that are expected to deliver higher growth in the future, and perhaps trading at a discount to the industry average. Consider how VBLT fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If VBLT has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth is expected to be lower than 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 VBLT’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Vascular Biogenics’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.