OncoMed Pharmaceuticals Inc (NASDAQ:OMED), a US$78.36M 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 fairly unexciting growth rate of 7.24% in the upcoming year , and a massive growth of 36.91% 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 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 OncoMed Pharmaceuticals is a laggard or leader relative to its healthcare sector peers. See our latest analysis for OncoMed Pharmaceuticals
What’s the catalyst for OncoMed Pharmaceuticals’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. Over the past year, the industry saw growth in the teens, beating the US market growth of 9.86%. OncoMed Pharmaceuticals leads the pack with its impressive earnings growth of 44.20% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with OncoMed Pharmaceuticals poised to deliver a 22.47% growth over the next couple of years compared to the industry’s 7.24%. This growth may make OncoMed Pharmaceuticals a more expensive stock relative to its peers.
Is OncoMed Pharmaceuticals and the sector relatively cheap?
The biotech sector’s PE is currently hovering around 27.83x, above the broader US stock market PE of 18.97x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry did return a higher 16.36% compared to the market’s 10.30%, which may be indicative of past tailwinds. Since OncoMed Pharmaceuticals’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge OncoMed Pharmaceuticals’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:OncoMed Pharmaceuticals’s industry-beating future is a positive for investors. If OncoMed Pharmaceuticals 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 OncoMed Pharmaceuticals’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 OMED’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 OncoMed Pharmaceuticals? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!