Investing is a little bit like landscaping. Most people want a mix of annuals and perennials in the yard and a variety of growth options to balance the portfolio. Perennials are the plants that persist for several growing seasons, and with that in mind we searched for stocks in the biotech industry that have EPS growth rates of 25% or higher over the next five years. If these companies achieve their projected growth, there will be impressive gains for the investor. What is equally important is that all of these biotech companies have substantial liquidity. When a company has significant reserves, they have the necessary funding on hand to fuel the predicted growth. Take a look at the list below to start your own investigation.
The Current ratio is a liquidity ratio used to determine a company's financial health. The metric illustrates how easily a firm can pay back its short obligations all at once through current assets. A company that has a current ratio of one or less is generally a liquidity red flag. Now this doesn't mean the company will go bankrupt tomorrow, but it also doesn't bode well for the company, and may indicate that it could have an issue paying back upcoming obligations.
The Quick ratio measures a company's ability to use its cash or assets to extinguish its current liabilities immediately. Quick assets include assets that presumably can be converted to cash at close to their book values. A company with a Quick Ratio of less than 1 cannot currently pay back its current liabilities. The quick ratio is more conservative than the Current Ratio because it excludes inventory from current assets, since some companies have difficulty turning their inventory into cash. If short-term obligations need to be paid off immediately, sometimes the current ratio would overestimate a company's short-term financial strength. In general, the higher the ratio, the greater the company's liquidity (i.e., the better able to meet current obligations using liquid assets).
EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. The 5-Year Expected EPS Growth Rate is a long term annual growth estimate, where the growth projections are made by analysts, the company or other credible sources.
We first looked for biotechnology stocks. We then looked for companies that have a substantial amount of cash on hand (Current Ratio>2)(Quick Ratio>2). We then looked for companies that have expected earnings per share growth of more than 25 percent for the next five years(5-year projected EPS Growth Rate>25%). We did not screen out any market caps.
Do you think these stocks have higher to rise? Use our list to help with your own analysis.
1) Dendreon Corp. (NASDAQ:DNDN)
|5-Year Projected Earnings Per Share Growth Rate||27.00%|
Dendreon Corporation, a biotechnology company, engages in the discovery, development, and commercialization of novel therapeutics to enhance cancer treatment options for patients. The company's product portfolio includes active cellular immunotherapy and small molecule product candidates to treat a range of cancers. The company offers PROVENGE (sipuleucel-T), an autologous cellular immunotherapy for the treatment of asymptomatic or minimally symptomatic, metastatic, castrate-resistant (hormone-refractory), and prostate cancer. Its product candidates under development comprise DN24-02, an investigational cellular immunotherapy targeted towards HER2/neu for the treatment of patients with bladder, breast, ovarian, and other solid tumors; carbonic anhydrase 9, an antigen expressed in renal cell carcinoma; carcinoembryonic antigen, an antigen expressed in colorectal and other cancers; and TRPM8, a small molecule to treat multiple cancers in advanced cancer patients.
2) Pacific Biosciences of California, Inc. (NASDAQ:PACB)
|5-Year Projected Earnings Per Share Growth Rate||30.00%|
Pacific Biosciences of California, Inc., a development stage company, develops, manufactures, and markets an integrated platform for genetic analysis. The company engages in developing a technology platform that enables single molecule, real-time (NASDAQ:SMRT) for the detection of biological processes. It primarily focuses on the deoxyribonucleic acid sequencing market.
3) VIVUS Inc. (NASDAQ:VVUS)
|5-Year Projected Earnings Per Share Growth Rate||51.00%|
VIVUS, Inc., a biopharmaceutical company, is developing therapies to address obesity, sleep apnea, diabetes, and male sexual health. Its lead investigational product, Qnexa, has completed Phase 3 clinical trials for the treatment of obesity. Qnexa is also in Phase 2 clinical development for the treatment of type 2 diabetes and obstructive sleep apnea.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 08/21/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.