ChemoCentryx Inc (NASDAQ:CCXI), a USD$410.62M small-cap, operates in the healthcare 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 relatively muted growth of 9.04% in the upcoming year , and a massive growth of 49.33% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the US 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, as well as evaluate whether ChemoCentryx is lagging or leading its competitors in the industry. Check out our latest analysis for ChemoCentryx
What’s the catalyst for ChemoCentryx’s sector growth?
Data analytics and other technology-enabled approaches 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 teens, beating the US market growth of 10.78%. ChemoCentryx 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 ChemoCentryx may be trading cheaper than its peers.
Is ChemoCentryx and the sector relatively cheap?
The biotech industry is trading at a PE ratio of 29x, higher than the rest of the US stock market PE of 20x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry did return a higher 16.06% compared to the market’s 10.43%, which may be indicative of past tailwinds. Since ChemoCentryx’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge ChemoCentryx’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? ChemoCentryx’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 ChemoCentryx based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If ChemoCentryx 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 ChemoCentryx’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 ChemoCentryx’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.