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vertex pharmaceuticals (VRTX -0.04%) It’s one of the hottest growth stocks to own within the healthcare industry. The company’s mainstay business is cystic fibrosis (CF), but it is also expanding into other fields. Over the last year, Vertex’s stock price rose just under 41%, easily outperforming its stock price. S&P500a still respectable 24% increase.
Can this biotech continue to rise after releasing its latest earnings numbers, or has the price gotten too high?
Vertex’s growth rate is slowing
On February 5, Vertex reported its 2023 year-end numbers. Product revenue totaled $9.9 billion over the past year, an increase of approximately 11% from 2022. The company continues to rely heavily on its main CF brand, Trikafta/Kaftrio. It brought in $8.9 billion in revenue and accounted for 91% of sales. Net income also increased 9% to $3.6 billion.
Vertex expects product revenue to be between $10.55 billion and $10.75 billion this year, meaning growth this year will be about 8% at the midpoint. This could be a worrying sign for growth investors looking for more than just single-digit growth.
There are many promising opportunities in the future
Although the business is not growing at a very fast pace, there are catalysts that could significantly increase sales in the future. The company has been working to develop its business beyond CF, which is important to pursue more growth opportunities.
Inaxaprin is a drug undergoing phase 2/3 trials for the treatment of kidney disease. And VX-548 shows promise as a non-opioid pain treatment. The company recently announced positive results from a Phase 3 trial evaluating its efficacy in treating moderate to severe acute pain. Vertex plans to submit a new drug application for the treatment around the middle of this year. Analysts say annual sales could reach a peak of $5 billion.
The company also received good news earlier this year when the Food and Drug Administration approved a gene therapy it was developing. CRISPR Therapeutics, Kathjivi. Regulators already approved it last year for the treatment of sickle cell disease, and it is now approved for the treatment of transfusion-dependent beta-thalassemia. Vertex will share the profits of the treatment with CRISPR (Vertex will receive his 60%).
Commercialization of Kasugebi means Vertex could soon profit from the treatment, which has a list price of $2.2 million. However, since it does not have a huge market, sales may not reach $1 billion until 2027. Bloomberg estimates it will peak at more than $2.2 billion in 2030.
Is Vertex’s potential worth its price?
Vertex has a market capitalization of $110 billion and trades at just under 27 times forward earnings. This is significantly higher than the average healthcare stock, which trades at 19 times forward earnings.
However, over the long term, Vertex’s price-to-earnings ratio (PEG) is just 0.60. The lower the PEG, the higher the value for investors, as it suggests that the company is expected to grow its earnings significantly over the next five years. The lower the PEG, the better the trade. Usually he is good if it is less than 1.
However, despite the expected growth, the analyst consensus price target is just under $395, meaning Wall Street expects the stock to fall within the next year.
Should you invest in Vertex stock?
As long as you’re willing to buy and hold without looking for immediate profits, Vertex Pharmaceuticals can make a solid long-term investment. The company has a strong CF business, an approved gene therapy treatment in Kasgeby, and its most valuable product is likely his VX-548, a non-opioid painkiller.
Vertex is still in its early stages of growth, and as the company grows larger and more diversified, its valuation could rise much higher than it currently does. Analyst price targets may suggest downside risk now, but those targets typically only cover the next 12 months. And targets will be upgraded over time.
This is a strong, growing business, and even at a high valuation, Vertex appears to be worth the premium investors will have to pay.
David Jagielski has no position in any stocks mentioned. The Motley Fool has positions in and recommends CRISPR Therapeutics and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.
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