Adverum Biotechnologies Inc (NASDAQ:ADVM), a US$332.28m 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 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 relatively muted growth of 8.91% in the upcoming year , and an enormous growth of 42.63% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. An interesting question to explore is whether we can we benefit from entering into the biotech sector right now. In this article, I’ll take you through the sector growth expectations, as well as evaluate whether Adverum Biotechnologies is lagging or leading its competitors in the industry.
Check out our latest analysis for Adverum Biotechnologies
What’s the catalyst for Adverum Biotechnologies’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 thirties, beating the US market growth of 14.24%. Adverum Biotechnologies 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 Adverum Biotechnologies may be trading cheaper than its peers.
Is Adverum Biotechnologies and the sector relatively cheap?
The biotech industry is trading at a PE ratio of 26.97x, higher than the rest of the US stock market PE of 18.22x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry did return a higher 17.67% compared to the market’s 11.40%, which may be indicative of past tailwinds. Since Adverum Biotechnologies’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Adverum Biotechnologies’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
Adverum Biotechnologies’s uncertain outlook is concerning for investors, with the prospect of negative earnings persisting into the future. If Adverum Biotechnologies has been on your watchlist for a while, now may not be the time to enter into the stock. However, before you make a decision on the stock, I suggest you look at Adverum Biotechnologies’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 ADVM’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 Adverum Biotechnologies? 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 editorial-team@simplywallst.com.