In This Article:
Laurus Labs Limited (NSE:LAURUSLABS), a ₹43.5b 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. Healthcare analysts are forecasting for the entire industry, an extremely robust growth of 30% in the upcoming year , and an enormous growth of 84% over the next couple of years. This rate is larger than the growth rate of the Indian stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether Laurus Labs is a laggard or leader relative to its healthcare sector peers.
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What’s the catalyst for Laurus Labs’s sector growth?
Pharma companies are seeking ways to improve R&D productivity, increase the efficiency, and enhance financial performance. In the past year, the industry delivered growth in the twenties, though still underperforming the wider Indian stock market. Laurus Labs lags the pack with its negative growth rate of -28% over the past year, which indicates the company has been growing at a slower pace than its pharmaceutical peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 60% in the upcoming year. This future growth may make Laurus Labs a more expensive stock relative to its peers.
Is Laurus Labs and the sector relatively cheap?
The pharmaceutical industry is trading at a PE ratio of 22.25x, relatively similar to the rest of the Indian stock market PE of 17.55x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 11% on equities compared to the market’s 9.5%. On the stock-level, Laurus Labs is trading at a higher PE ratio of 29.85x, making it more expensive than the average pharmaceutical stock. In terms of returns, Laurus Labs generated 9.8% in the past year, which is 1.5% below the pharmaceutical sector.
Next Steps:
Laurus Labs’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this higher growth prospect is also reflected in the company’s price, suggested by its higher PE ratio relative to its peers. If Laurus Labs has been on your watchlist for a while, now may not be the best time to enter into the stock since it is trading at a higher valuation compared to other pharmaceutical companies. However, before you make a decision on the stock, I suggest you look at Laurus Labs’s fundamentals in order to build a holistic investment thesis.