Biotech companies have been all the rage for a while now with people hankering after their shares. The geniuses that added biology to industry sure knew what they were doing. Talk about a winning combination. If you are searching for some glamour stocks in the biotech industry, stocks that will grow at an impressive rate relative to the market, we suggest you take a look at these and figure out whether they are worthy of your praise…and your money. Today, we are going to use the price/earnings to growth ratio in addition to the earnings per share in order to give us a better picture of each company and its projected growth. We will also look at the price-to-earnings ratio as a higher one indicates a growth stock. A word to the wise here: if you are looking for dividends, this is not the place for you. Growth companies usually plough back profits into capital projects. Also, every growth company's stock isn't a growth stock: these are often valued too high. Bearing this information in mind, let us launch off on our analysis and see what we unearth.
Dendreon Corporation (DNDN): Trading at about $14 right now, precariously close to the lower level of its 52-week range, we see a negative EPS of $-3.22. Let's not be too quick to judge. With a market capitalization of $2.09 billion, its expected 5-year price/earnings to growth ratio is 0.16, while industry leader Sinovac Biotech SVA has one of 7.59. Its quarterly revenue growth rate is 218% and gives it a rank of 14/407 in the industry. Its long-term growth rate for 5 years is -31%. Even using Joel Greenblatt's Magic Formula of finding companies with a return on assets more than 25%, that silver lining for Dendreon is still elusive, for its ROA is -41.2%. DNDN had such promise, even as recently as July of 2011, with its marketing of the high-priced Provenge: how was it to predict that doctors would not prescribe it at the hoped for rate? One gloomy day in August of 2011, the share price dropped 65% and continued to descend until a recovery was seen this month. So, if you want to buy a cheap stock and hope that it will attain its past glory, this would be it. Going by the facts and figures, I wouldn't. Just too much red going on.
Valeant Pharmaceuticals International, Inc. (VRX): One share costs about $49.19, its earnings per share is $0.23 and price-to-earnings ratio is 210.21. This is expected with biotech companies and other high-growth startups and indicates investor enthusiasm. It has a quarterly revenue growth rate of 188.4% and a 5-year growth rate of 15.24%, which ranks it two out of 28 in the industry. Its price/earnings to growth figures are not available; the industry PEG is 1.36 and that of the sector, .74. This company, with its admirable ideal of being named among the top 15 global pharmaceutical companies by 2013, has a market cap of $15.15 billion, and its price target was raised at Jeffries from $64 to $75. Obviously, Valeant has the public won over. I am impressed with what I see, but the analysts are not so. Analyst sentiment has, however, been picking up in this past month. I advise further consideration.
Human Genome Sciences Inc. (HGSI): Its market capitalization is $1.76 billion, its earnings per share is $2.03, and it has recently been trading at around $8, lower than its 52-week low of $9.25, its high having been $30.15. What goes down must normally come up, so there is always hope. Let's see what the market gurus have to say. Its 5-year expected price/earnings to growth ratio is another negative, -.05 which gives it an industry ranking of 44/407, and with a quarterly revenue growth of -33%, it is ranked 193/407. Its main product in development is BENLYSTA and it also possesses financial rights to products like darapladib in GlaxoSmithKline's development arena. Analysts have more faith in Human Genome Sciences over its competitor Valeant. There are even some who call this a strong buy. The company can take that as a compliment, but, should you and I as investors take that as a green signal to buy?
Amgen Inc. (AMGN): Priced at about $67, its market capitalization is $59.25 billion, its price-to-earnings ratio is 16.74, and its earnings per share is $4.04. It even has a dividend yield of 2.1%. Feeling better already? Its 5-year expected price/earnings to growth ratio is 1.6, which gives it an industry rank of 13/407. Its 5-year growth rate is 7.96%. On an average, analysts call this stock a medium buy, though there are some who believe it is a strong buy. It has a high price target of $75. Healthcare did start 2012 with a rosier than 2% return, which was powered in part by some of the discounted healthcare names I identified in the last week. The head of technical analysis at Strategas Research Partners said in a recent note that these stocks seem attractive for the first time in a decade, and that Amgen is showing traces of strong tenacity, which could help it break through old barriers. A good impetus indeed, for those of you who are convinced to buy this stock.
Arena Pharmaceuticals Inc. (ARNA): What do you get for about $1.65? In this case, one share of a company named Arena, which has an earnings per share of -0.88 and a market capitalization of $240.94 million. Is this a situation of you get what you pay for? Let us investigate further. With a 5-year expected price/earnings to growth ratio of -0.09, Arena has an industry rank of 48/407. Its quarterly revenue growth is -54.70% and this ranks it 211/407 in the industry. Analyst opinion seems to follow this dismal picture as only one calls it a buy, and, on an average, this stock scores a 3.2 out of 5 - 5 being sell. You get the general idea. The only ray of hope is a high price target of $2.50…is that enough incentive to buy a share? Not for me. The last sort of impressive news about this company was that analysts at Piper Jaffray upgraded it and raised the price target from $1.50 to $3 for reasons stated here, but that was back in November of 2011, and we truly hope Arena can come up with more exciting news. Mainly that it has got Lorcaserin past the FDA.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
