MediciNova Inc (NASDAQ:MNOV), a $269.31M 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. 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 1.58% in the upcoming year , and an enormous growth of 39.93% 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, as well as evaluate whether MediciNova is lagging or leading its competitors in the industry. Check out our latest analysis for MediciNova
What’s the catalyst for MediciNova’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 teens, beating the US market growth of 10.52%. MediciNova leads the pack with its impressive earnings growth of 16.86% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be -6.39% compared to the wider biotech sector growth hovering of 1.58%, next year. As a future industry laggard in growth, MediciNova may be a cheaper stock relative to its peers.
Is MediciNova and the sector relatively cheap?
Biotech companies are typically trading at a PE of 27x, higher than the rest of the US stock market PE of 20.1x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry did return a higher 16.12% compared to the market’s 10.45%, which may be indicative of past tailwinds. Since MediciNova’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge MediciNova’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:MediciNova is a biotech industry laggard in terms of its future growth outlook. If MediciNova has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth is expected to be lower than its healthcare peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. However, before you make a decision on the stock, I suggest you look at MediciNova’s fundamentals in order to build a holistic investment thesis.
- 1. 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.
- 2. Historical Track Record: What has MNOV’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.
- 3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of MediciNova? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!