Is Orexigen Therapeutics Inc (OREX) An Industry Laggard Or Leader?
Orexigen Therapeutics Inc (NASDAQ:OREX), a USD$27.89M 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 strong double-digit growth of 24.76% in the upcoming year , and a whopping growth of 91.52% 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 will analyse the industry outlook, and also determine whether OREX is a laggard or leader relative to its healthcare sector peers. Check out our latest analysis for Orexigen Therapeutics
What’s the catalyst for OREX’s sector growth?
Companies operating in the pharmaceutical 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 past year, the industry delivered growth of 7.76%, though still underperforming the wider US stock market. OREX 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 pharmaceutical peers. Although OREX is poised to deliver a 21.32% growth next year, moving it from negative to positive territory, it still lags its industry average rate of growth of 24.76%.
Is OREX and the sector relatively cheap?
Pharmaceutical companies are typically trading at a PE of 23x, relatively similar to the rest of the US stock market PE of 22x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a higher 16.15% compared to the market’s 10.06%, potentially illustrative of past tailwinds. Since OREX’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge OREX’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? OREX is a pharmaceutical industry laggard in terms of its future growth outlook. If your initial investment thesis is around the growth prospects of OREX, there are other pharmaceutical companies that are expected to deliver higher growth in the future, and perhaps trading at a discount to the industry average. Consider how OREX fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If OREX has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth is expected to be lower than its pharmaceutical 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 OREX’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Orexigen Therapeutics’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.
