Diffusion Pharmaceuticals Inc (NASDAQ:DFFN), a USD$19.46M small-cap, is a healthcare company operating in an industry, which faces key trends such as rising demand fuelled by an aging population and the growing prevalence of chronic diseases. Healthcare analysts are forecasting for the entire industry, a relatively muted growth of 9.04% in the upcoming year , and an enormous growth of 49.33% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the US stock market as a whole. Today, I’ll take you through the sector growth expectations, and also determine whether Diffusion Pharmaceuticals is a laggard or leader relative to its healthcare sector peers. See our latest analysis for Diffusion Pharmaceuticals
What’s the catalyst for Diffusion Pharmaceuticals’s sector growth?
Data analytics and other technology-enabled approaches are creating opportunities for innovations, however, stakeholders have been challenged to keep abreast of this structural shift while under pressure to cut costs. Over the past year, the industry saw growth in the teens, beating the US market growth of 10.79%. Diffusion Pharmaceuticals lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook doesn’t seem to be much better given that analysts are forecasting continued unprofitability going forward.
Is Diffusion Pharmaceuticals and the sector relatively cheap?
Biotech companies are typically trading at a PE of 29x, above the broader US stock market PE of 20x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry did return a higher 16.06% compared to the market’s 10.46%, which may be indicative of past tailwinds. Since Diffusion Pharmaceuticals’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Diffusion Pharmaceuticals’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Diffusion Pharmaceuticals’s uncertain outlook is a negative for shareholders, with the prospect of negative earnings persisting into the future. If your view of the industry outlook has changed since you bought, now may be a good time to revisit your initial investment thesis. Also, if you’re relatively concentrated in retail, you may want to value Diffusion Pharmaceuticals based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If Diffusion Pharmaceuticals has been on your watchlist for a while, now may not be the time to enter into the stock given its negative future prospect. However, before you make a decision on the stock, I suggest you look at Diffusion Pharmaceuticals’s future cash flows in order to assess whether the stock is trading at a reasonable price, as well as other important fundamentals such as the company’s financial health in order to build a holistic investment thesis.
For a deeper dive into Diffusion Pharmaceuticals’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other healthcare stocks instead? Use our free playform to see my list of over 1000 other healthcare companies trading on the market.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.