Collagen Solutions plc (AIM:COS), a £8.11M small-cap, is a healthcare company operating in an 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 positive double-digit growth of 11.85% in the upcoming year , and an enormous growth of 72.83% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the UK stock market as a whole. An interesting question to explore is whether we can we benefit from entering into the biotech sector right now. Below, I will examine the sector growth prospects, and also determine whether Collagen Solutions is a laggard or leader relative to its healthcare sector peers. Check out our latest analysis for Collagen Solutions
What’s the catalyst for Collagen Solutions’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 past year, the industry delivered growth in the twenties, beating the UK market growth of 12.03%. Collagen Solutions lags the pack with its lower growth rate of 14.42% 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 28.31% in the upcoming year. This future growth may make Collagen Solutions a more expensive stock relative to its peers.
Is Collagen Solutions and the sector relatively cheap?
Biotech companies are typically trading at a PE of 26.8x, above the broader UK stock market PE of 18x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry did return a higher 14.91% compared to the market’s 12.79%, which may be indicative of past tailwinds. Since Collagen Solutions’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Collagen Solutions’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:Collagen Solutions’s industry-beating future is a positive for investors. If Collagen Solutions 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 Collagen Solutions’s fundamentals in order to build a holistic investment thesis.
- 1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- 2. Historical Track Record: What has COS’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Collagen Solutions? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!