December Insights Into Healthcare Stocks: Scancell Holdings plc (AIM:SCLP)

Scancell Holdings plc (AIM:SCLP), a GBP£38.23M small-cap, is a healthcare company operating in an 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, a strong double-digit growth of 18.66% in the upcoming year , and a whopping growth of 61.42% 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. Is now the right time to pick up some shares in biotech companies? Below, I will examine the sector growth prospects, as well as evaluate whether SCLP is lagging or leading its competitors in the industry. Check out our latest analysis for Scancell Holdings

What’s the catalyst for SCLP'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 12.37%. SCLP lags the pack with its sustained negative earnings over the past couple of years. The company's outlook doesn't seem to be much better given that analysts are forecasting continued unprofitability going forward. This lack of growth means SCLP may be trading cheaper than its peers.

Is SCLP and the sector relatively cheap?

The biotech sector's PE is currently hovering around 27x, 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 12.89%, which may be indicative of past tailwinds. Since SCLP’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge SCLP’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

Are you a shareholder? SCLP's uncertain outlook is a negative for shareholders, with the prospect of negative earnings persisting into the future. If your view of the industry outlook has changed since you bought, now may be a good time to revisit your initial investment thesis. Also, if you’re relatively concentrated in retail, you may want to value SCLP based on its cash flows to determine if it is overpriced based on its current growth outlook.

Are you a potential investor? If SCLP has been on your watchlist for a while, now may not be the time to enter into the stock given its negative future prospect. However, before you make a decision on the stock, I suggest you look at SCLP'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 Scancell 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com

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.