Pacific Edge Limited (NZSE:PEB), a NZ$151.55M small-cap, is a healthcare company operating in an industry, which continues to be affected by the sustained economic uncertainty and structural trends, such as an aging population, impacting the sector globally. The demand for new drug development to meet new or persistent chronic illnesses, as well as the ongoing need for biotech drugs as Baby Boomers continue to age, are growth drivers for the optimistic outlook for the biotech industry in the long run. Healthcare analysts are forecasting for the entire industry, a positive double-digit growth of 11.07% in the upcoming year , and an enormous growth of 76.03% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the NZ stock market as a whole. Is the biotech industry an attractive sector-play right now? In this article, I’ll take you through the sector growth expectations, and also determine whether Pacific Edge is a laggard or leader relative to its healthcare sector peers. Check out our latest analysis for Pacific Edge
What’s the catalyst for Pacific Edge'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 previous year, the industry saw growth in the twenties, beating the NZ market growth of 6.47%. Pacific Edge lags the pack with its lower growth rate of 19.31% 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 57.43% in the upcoming year. This future growth may make Pacific Edge a more expensive stock relative to its peers.
Is Pacific Edge and the sector relatively cheap?
Biotech companies are typically trading at a PE of 25.42x, higher than the rest of the NZ stock market PE of 14.23x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry did return a higher 17.74% compared to the market’s 11.07%, which may be indicative of past tailwinds. Since Pacific Edge’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Pacific Edge’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:Pacific Edge’s industry-beating future is a positive for investors. If Pacific Edge 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 Pacific Edge'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 PEB'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 Pacific Edge? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
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.