OncoMed Pharmaceuticals Inc (NASDAQ:OMED), a $107.89M small-cap, is a healthcare company operating in an industry, which continues to be affected by the sustained economic uncertainty and structural trends, such as an aging population, impacting the sector globally. Healthcare analysts are forecasting for the entire industry, a relatively muted growth of 1.58% in the upcoming year , and an enormous growth of 39.93% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the US stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether OncoMed Pharmaceuticals is a laggard or leader relative to its healthcare sector peers. See our latest analysis for OncoMed Pharmaceuticals
What’s the catalyst for OncoMed Pharmaceuticals’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 growth in the teens, beating the US market growth of 10.47%. OncoMed Pharmaceuticals leads the pack with its impressive earnings growth of 44.20% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with OncoMed Pharmaceuticals poised to deliver a 22.47% growth over the next couple of years compared to the industry’s 1.58%.
Is OncoMed Pharmaceuticals and the sector relatively cheap?
Biotech companies are typically trading at a PE of 27x, above the broader US stock market PE of 20.1x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry did return a higher 16.12% compared to the market’s 10.42%, which may be indicative of past tailwinds. Since OncoMed Pharmaceuticals’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge OncoMed Pharmaceuticals’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
OncoMed Pharmaceuticals’s industry-beating future is a positive for investors. If OncoMed Pharmaceuticals 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 OncoMed Pharmaceuticals’s fundamentals in order to build a holistic investment thesis.