ABcann Global Corporation (TSXV:ABCN), a CAD$125.34M small-cap, is a healthcare company operating in an industry, which faces key trends such as rising demand fuelled by an aging population and the growing prevalence of chronic diseases. Healthcare analysts are forecasting for the entire industry, negative growth in the upcoming year, and Today, I’ll take you through the sector growth expectations, as well as evaluate whether ABCN is lagging or leading in the industry. View our latest analysis for ABcann Global
What’s the catalyst for ABCN's sector growth?
Companies operating in the pharmaceutical sector are confronted with ways to improve R&D productivity, increase the efficiency of its operations, rationalise spending on sales and marketing and enhance financial performance. In the previous year, the industry saw growth in the teens, beating the Canadian market growth of -19.21%. ABCN lags the pack with its negative growth rate of -275.66% over the past year, which indicates the company will be growing at a slower pace than its pharmaceutical peers. As the company trails the rest of the industry in terms of growth, ABCN may also be a cheaper stock relative to its peers.
Is ABCN and the sector relatively cheap?
Pharmaceutical companies are typically trading at a PE of 102x, above the broader Canadian stock market PE of 17x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry did return a higher 22.27% compared to the market’s 9.49%, which may be indicative of past tailwinds. Since ABCN’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge ABCN’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? ABCN has been a pharmaceutical industry laggard in the past year. If your initial investment thesis is around the growth prospects of ABCN, there are other pharmaceutical companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how ABCN fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If ABCN has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its pharmaceutical peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at ABCN’s future cash flows in order to assess whether the stock is trading at a reasonable price.