Is Now The Time To Bet On The Healthcare Sector And Starpharma Holdings Limited (ASX:SPL)?

Starpharma Holdings Limited (ASX:SPL), a AUDA$503.90M 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. Pharma companies, in particular, are operating in a difficult environment prompted by a more challenging healthcare agenda. This is illustrated by the growing pressure for innovative, cost-effective treatments, along with higher requirements for transparency from regulators and healthcare providers. Healthcare analysts are forecasting for the entire industry, negative growth in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the Australian stock market as a whole. Is the pharmaceutical industry an attractive sector-play right now? Below, I will examine the sector growth prospects, as well as evaluate whether Starpharma Holdings is lagging or leading its competitors in the industry. Check out our latest analysis for Starpharma Holdings

What’s the catalyst for Starpharma Holdings's sector growth?

Pharma companies are seeking ways to improve R&D productivity, increase the efficiency of its operations, rationalise spending on sales and marketing and enhance financial performance. In the previous year, the industry saw growth in the teens, beating the Australian market growth of 6.89%. Starpharma Holdings leads the pack with its impressive earnings growth of 33.02% over the past year. This proven growth may make Starpharma Holdings a more expensive stock relative to its peers.

Is Starpharma Holdings and the sector relatively cheap?

The pharmaceutical sector's PE is currently hovering around 14x, in-line with the Australian stock market PE of 18x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a lower 8.96% compared to the market’s 11.86%, potentially indicative of past headwinds. Since Starpharma Holdings’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Starpharma Holdings’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

Are you a shareholder? Starpharma Holdings 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 Starpharma Holdings as part of your portfolio. However, if you’re relatively concentrated in pharmaceutical, you may want to value Starpharma Holdings based on its cash flows to determine if it is overpriced based on its current growth outlook.

Are you a potential investor? If Starpharma Holdings 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 pharmaceutical industry. However, before you make a decision on the stock, I suggest you look at Starpharma Holdings’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 Starpharma Holdings'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.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.