January Insights Into Healthcare Stocks: La Jolla Pharmaceutical Company (NASDAQ:LJPC)

La Jolla Pharmaceutical Company (NASDAQ:LJPC), a USD$712.63M small-cap, operates in the healthcare 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 fairly unexciting growth rate of 9.04% in the upcoming year , and an enormous 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. Should your portfolio be overweight in the biotech sector at the moment? In this article, I’ll take you through the sector growth expectations, and also determine whether La Jolla Pharmaceutical is a laggard or leader relative to its healthcare sector peers. View our latest analysis for La Jolla Pharmaceutical

What’s the catalyst for La Jolla Pharmaceutical'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 past year, the industry delivered growth in the teens, beating the US market growth of 10.79%. La Jolla Pharmaceutical lags the pack with its negative growth rate of -33.68% 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 18.16% in the upcoming year. This future growth may make La Jolla Pharmaceutical a more expensive stock relative to its peers.

Is La Jolla Pharmaceutical and the sector relatively cheap?

Biotech companies are typically trading at a PE of 29x, above the broader 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 10.46%, which may be indicative of past tailwinds. Since La Jolla Pharmaceutical’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge La Jolla Pharmaceutical’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

Are you a shareholder? La Jolla Pharmaceutical’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto La Jolla Pharmaceutical as part of your portfolio. However, if you’re relatively concentrated in biotech, you may want to value La Jolla Pharmaceutical based on its cash flows to determine if it is overpriced based on its current growth outlook.

Are you a potential investor? If La Jolla Pharmaceutical 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 La Jolla Pharmaceutical’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 La Jolla Pharmaceutical'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.

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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.