Merus NV. (NASDAQ:MRUS), a US$354.23M small-cap, is a healthcare company operating in an 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 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 2.60% in the upcoming year , and a massive growth of 31.43% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. Is now the right time to pick up some shares in biotech companies? In this article, I’ll take you through the sector growth expectations, and also determine whether Merus is a laggard or leader relative to its healthcare sector peers. View our latest analysis for Merus
What’s the catalyst for Merus’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 US market growth of 11.50%. Merus lags the pack with its earnings falling by more than half 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 23.37% in the upcoming year. This future growth may make Merus a more expensive stock relative to its peers.
Is Merus and the sector relatively cheap?
The biotech industry is trading at a PE ratio of 26.06x, above the broader US stock market PE of 18.15x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry did return a higher 17.94% compared to the market’s 10.60%, which may be indicative of past tailwinds. Since Merus’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Merus’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:Merus’s industry-beating future is a positive for investors. If Merus 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 Merus’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 MRUS’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 Merus? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!