Resverlogix Corp (TSX:RVX), a CAD$198.30M small-cap, operates in the healthcare industry, which faces demand for new drug development to meet new or persistent chronic illnesses, and ongoing need for biotech drugs as Baby Boomers continue to age. Healthcare analysts are forecasting for the entire industry, negative growth in the upcoming year, and an overall negative growth rate in the next couple of years. However, this is still higher than the growth rate of the Canadian stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether RVX is a laggard or leader relative to its healthcare sector peers. View our latest analysis for Resverlogix
What’s the catalyst for RVX'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 negative growth of -9.58%, underperforming the Canadian market growth of -19.21%. RVX lags the pack with its negative growth rate of -89.34% over the past year, which indicates the company will be growing at a slower pace than its biotech peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 23.49% in the upcoming year.
Is RVX and the sector relatively cheap?
The biotech industry is trading at a PE ratio of 11x, lower than the rest of the Canadian stock market PE of 17x. This illustrates a somewhat under-priced sector compared to the rest of the market. Furthermore, the industry returned a higher 12.35% compared to the market’s 9.49%, making it a potentially attractive sector. Since RVX’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge RVX’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? RVX’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto RVX as part of your portfolio. However, if you’re relatively concentrated in biotech, you may want to value RVX based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If RVX 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. Before you make a decision on the stock, take a look at RVX’s cash flows and assess whether the stock is trading at a fair price.