Prescient Therapeutics Limited (ASX:PTX), a AUD$14.79M 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. Healthcare analysts are forecasting for the entire industry, a somewhat weaker growth of 3.12% in the upcoming year, and a low 4.52% growth over the next couple of years. This rate is below the growth rate of the Australian stock market as a whole. Today, I will analyse the industry outlook, and also determine whether PTX is a laggard or leader relative to its healthcare sector peers. See our latest analysis for PTX
What’s the catalyst for PTX'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. In the previous year, the industry saw growth of 2.93%, beating the Australian market growth of -4.59%. PTX leads the pack with its impressive earnings growth of 42.71% over the past year. This proven growth may make PTX a more expensive stock relative to its peers.
Is PTX and the sector relatively cheap?
Biotech companies are typically trading at a PE of 31x, higher than the rest of the Australian stock market PE of 16x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry did return a higher 16.01% compared to the market’s 11.92%, which may be indicative of past tailwinds. Since PTX’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge PTX’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? PTX recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto PTX as part of your portfolio. However, if you’re relatively concentrated in biotech, you may want to value PTX based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If PTX has been on your watchlist for a while, now may be the time to enter into the stock, if you like its ability to deliver growth and are not highly concentrated in the biotech industry. Before you make a decision on the stock, take a look at PTX’s cash flows and assess whether the stock is trading at a fair price.