Eris Lifesciences Limited (NSE:ERIS), a ₹103.00b small-cap, operates in the healthcare industry, which continues to be affected by the sustained economic uncertainty and structural trends, such as an aging population, impacting the sector globally. 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, a positive double-digit growth of 29.10% in the upcoming year , and an enormous triple-digit earnings growth over the next couple of years. This rate is larger than the growth rate of the Indian stock market as a whole. Is now the right time to pick up some shares in pharmaceutical companies? Today, I will analyse the industry outlook, and also determine whether Eris Lifesciences is a laggard or leader relative to its healthcare sector peers.
What’s the catalyst for Eris Lifesciences’s sector growth?
Companies operating in the pharmaceutical sector are confronted with ways to improve R&D productivity, increase the efficiency of its operations, rationalise spending on sales and marketing and enhance financial performance. In the past year, the industry delivered growth of 6.03%, though still underperforming the wider Indian stock market. Eris Lifesciences leads the pack with its impressive earnings growth of 21.93% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with Eris Lifesciences poised to deliver a 38.85% growth over the next couple of years compared to the industry’s 29.10%. This growth is a median of profitable companies of 25 Pharmaceuticals companies in IN including Piramal Enterprises, Piramal Enterprises and Ajanta Pharma. This growth may make Eris Lifesciences a more expensive stock relative to its peers.
Is Eris Lifesciences and the sector relatively cheap?
The pharmaceutical sector’s PE is currently hovering around 26.28x, in-line with the Indian stock market PE of 21.46x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 10.70% on equities compared to the market’s 9.84%. On the stock-level, Eris Lifesciences is trading at a higher PE ratio of 35.02x, making it more expensive than the average pharmaceutical stock. In terms of returns, Eris Lifesciences generated 33.29% in the past year, which is 22.60% over the pharmaceutical sector.
Eris Lifesciences’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this higher growth prospect is also reflected in the company’s price, suggested by its higher PE ratio relative to its peers. If Eris Lifesciences has been on your watchlist for a while, now may not be the best time to enter into the stock since it is trading at a higher valuation compared to other pharmaceutical companies. However, before you make a decision on the stock, I suggest you look at Eris Lifesciences’s fundamentals in order to build a holistic investment thesis.
- 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.
- Historical Track Record: What has ERIS’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.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Eris Lifesciences? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.