Vertex Pharmaceuticals (VRTX) is a biotech firm which has average trade volumes in excess of 3.3 million shares per day. VRTX has grown sales dramatically, and trades at high valuations. Should retail investors jump on the VRTX bandwagon based on fabulous sales growth and trading volumes?
No. As simple as it sounds, you are better off shopping to find the best deals in the biotech industry. Independent research allows investors to go beyond the stocks featured in the news and shop lesser-known alternatives.
Screening other biotech reveals`alternatives which are poised to grow faster and which are trading at lower valuations. The future potential of these surrogate stocks can be gauged by using financial metrics to determine how cheaply a stock is priced, its ability to weather hardship, and its growth potential.
As alternatives to VRTX, consider the following stocks with solid credit scores:
Acorda Therapeutics, Inc.
AVEO Pharmaceuticals, Inc.
Jazz Pharmaceuticals plc
Momenta Pharmaceuticals Inc.
Each of these alternative stocks is categorized as "safe" according to the Altman Z-score, indicating that they are not considered bankruptcy risks.
Moreover, these stocks are arguably cheaper, and have better growth prospects than VRTX:
P/Free Cash Flow
Sales growth past 5 years
These stocks have better stats. Based on lower price multiples, these stocks are cheaper than VRTX at current market prices. What's more, each of these stocks has better growth prospects according to analyst projections. Thus VRTX's price would have to drop significantly to become competitive with these stocks because at current, mostly high, valuations they are simply better deals.
Rather than restrict yourself to concentrated investments in VRTX, consider a diversified mix of these four securities as a more attractive alternative.
Please read the article disclaimer for this article and Altman z-score calculations.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.