Venn Life Sciences Holdings plc (AIM:VENN), a GBP£7.54M small-cap, is a healthcare company operating in an 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, the bottom line growth to double in the upcoming year , and an enormous triple-digit earnings growth over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the UK stock market as a whole. Below, I will examine the sector growth prospects, as well as evaluate whether VENN is lagging or leading in the industry. View our latest analysis for Venn Life Sciences Holdings
What’s the catalyst for VENN’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 -77.72%, underperforming the UK market growth of 12.37%. VENN lags the pack with its earnings falling by more than half over the past year, which indicates the company will be growing at a slower pace than its life sciences peers. As the company trails the rest of the industry in terms of growth, VENN may also be a cheaper stock relative to its peers.
Is VENN and the sector relatively cheap?
The life sciences sector’s PE is currently hovering around 42x, above the broader UK stock market PE of 18x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a similar 11.08% on equities compared to the market’s 12.89%. Since VENN’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge VENN’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? VENN has been a life sciences industry laggard in the past year. If your initial investment thesis is around the growth prospects of VENN, there are other life sciences companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how VENN fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If VENN 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 VENN’s future cash flows in order to assess whether the stock is trading at a reasonable price.