Invitae Corporation (NYSE:NVTA), a US$980m 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 somewhat weaker growth of 4.6% in the upcoming year , and a massive growth of 63% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. Should your portfolio be overweight in the biotech sector at the moment? Below, I will examine the sector growth prospects, and also determine whether Invitae is a laggard or leader relative to its healthcare sector peers.
What’s the catalyst for Invitae’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. Over the past year, the industry saw growth in the thirties, beating the US market growth of 19%. Invitae lags the pack with its negative growth rate of -29% over the past year, which indicates the company has been growing at a slower pace than its biotech peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 14% in the upcoming year. This future growth may make Invitae a more expensive stock relative to its peers.
Is Invitae and the sector relatively cheap?
The biotech sector’s PE is currently hovering around 25.37x, above the broader US stock market PE of 19.55x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry did return a higher 20% compared to the market’s 11%, which may be indicative of past tailwinds. Since Invitae’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Invitae’s value is to assume the stock should be relatively in-line with its industry.
Invitae’s industry-beating future is a positive for investors. If Invitae 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 Invitae’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 NVTA’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 Invitae? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.