BPH Energy Limited (ASX:BPH), a AUDA$1.77M small-cap, operates in the healthcare industry, which has experienced tailwinds from issues such as higher demand driven by an aging population and the increasing prevalence of diseases and comorbidities. Healthcare analysts are forecasting for the entire industry, an extremely elevated growth of 33.15% in the upcoming year , and an enormous growth of 46.15% over the next couple of years. This rate is larger than the growth rate of the Australian stock market as a whole. Today, I’ll take you through the sector growth expectations, and also determine whether BPH Energy is a laggard or leader relative to its healthcare sector peers. Check out our latest analysis for BPH Energy
What’s the catalyst for BPH Energy’s sector growth?
Companies operating in the life sciences sector are confronted with ways to improve R&D productivity, increase the efficiency of its operations, rationalise spending on sales and marketing and enhance financial performance. In the previous year, the industry endured negative growth of -25.58%, underperforming the Australian market growth of 6.76%. BPH Energy lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means BPH Energy may be trading cheaper than its peers.
Is BPH Energy and the sector relatively cheap?
The life sciences sector’s PE is currently hovering around 42x, above the broader Australian stock market PE of 18x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a lower 8.46% compared to the market’s 11.89%, which may be indicative of past headwinds. Since BPH Energy’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge BPH Energy’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? BPH Energy has been a life sciences industry laggard in the past year. If your initial investment thesis is around the growth prospects of BPH Energy, there are other life sciences companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how BPH Energy fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If BPH Energy has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its life sciences peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at BPH Energy’s future cash flows in order to assess whether the stock is trading at a reasonable price.