The biotech industry is experiencing steady growth as a result of rapid drug development and, the growing impact of chronic diseases, and the development of innovative therapies and treatments that are revolutionizing healthcare.
Given the industry’s growth prospects, investors could consider buying fundamentally sound biotech stocks Entrada Therapeutics, Inc. (TRDA), Alkermes plc (ALKS) and Amgen Inc. (AMGN) for solid returns.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the biotech industry.
Biotechnology has a wide range of profitable applications, particularly in healthcare. It is projected to promote breakthroughs in precision medicine, gene treatments, and regenerative medicines, ensuring the sector’s long-term growth.
In biotech, generative AI technologies such as generative models are being utilized to expedite drug discovery, protein engineering, and customized medicine. The AI in biotechnology market share is expected to grow at a 29.7% CAGR until 2032.
Furthermore, the global biotechnology instruments market is projected to grow at a CAGR of 8.1% until 2032. Investors’ interest in biotech stocks can be gauged from SPDR S&P Biotech ETF’s (XBI) 22.9% returns over the past month.
Considering these conducive trends, let’s look at the fundamentals of the three Biotech stock picks, beginning with number 3.
Stock #3: Entrada Therapeutics, Inc. (TRDA)
TRDA is a biotech company specializing in developing Endosomal Escape Vehicle (EEV) therapeutics for various neuromuscular diseases, with lead candidates targeting Duchenne muscular dystrophy and myotonic dystrophy type1.
TRDA’s forward EV/Sales of 2.45x is 33.1% lower than the industry average of 3.67x.
TRDA’s trailing-12-month gross profit margin of 76.29% is 34.2% higher than the industry average of 56.84%. Its trailing-12-month levered FCF margin of 141.8% is significantly higher than the industry average of 0.29%.
For the third quarter that ended September 30, 2023, TRDA generated collaboration revenue of $43.74 million. The company’s income from operations and net income came in at $14.01 million and $35.46 million, up significantly from the prior-year quarter’s loss from operations and net loss of $25.94 million and $25.14 million, respectively.
Also, its net income per share stood at $1.02 compared to a year-ago net loss per share of $0.80.
Street expects TRDA’s revenue to come in at $108.59 million for the year ending December 2023. Its EPS is expected to increase 95.1% year-over-year for the same period. Shares of TRDA has gained 46.9% over the past month to close the last trading session at $16.69.
TRDA’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
TRDA also has an A grade for Value and a B for Growth, Sentiment and Quality. It is ranked #9 out of 341 stocks in the Biotech industry. Click here to see the additional POWR Ratings for Stability and Momentum for TRDA.
Stock #2: Alkermes plc (ALKS)
Headquartered in Dublin, Ireland, ALKS is a biopharmaceutical company that researches, develops, and commercializes pharmaceutical products to address unmet medical needs of patients in the fields of neuroscience and oncology in the United States, Ireland, and internationally.
ALKS’ forward EV/Sales of 2.54x is 30.9% lower than the industry average of 3.67x. Its forward Price/Sales of 2.84x is 29.5% lower than the industry average of 4.03x.
ALKS’ trailing-12-month EBIT margin of 13.89% is significantly higher than the industry average of 0.81%. Its trailing-12-month levered FCF margin of 12.15% is significantly higher than the industry average of 0.29%.
During the fiscal third quarter that ended September 30, 2023, ALKS’ total revenues increased 51% year-over-year to $380.94 million. Its net income came in at $47.76 million, compared to a loss of $63.97 million in the previous-year quarter. Also, its earnings per ordinary share came in at $0.29, compared to negative $0.39 in the previous-year quarter.
The consensus revenue estimate of $1.64 billion for the year ending December 2023 represents a 47.3% increase year-over-year. Its EPS is estimated to grow 379.1% year-over-year to $1.63 for the same period. It surpassed EPS estimates in all four trailing quarters. ALKS’ shares have gained 14.3% over the past month to close the last trading session at $27.87.
ALKS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked #7 in the same industry. It has an A grade for Value and Quality and a B for Growth and Sentiment. To see additional ALKS’ ratings for Stability and Momentum, click here.
Stock #1: Amgen Inc. (AMGN)
AMGN is a global biopharmaceutical company that focuses on developing and delivering human therapeutics in areas such as inflammation, oncology, bone health, cardiovascular disease, nephrology, and neuroscience.
AMGN’s forward non-GAAP P/E of 15.32x is 20% lower than the industry average of 19.16x. Its forward EV/EBIT of 13.24x is 25.1% lower than the industry average of 17.69x.
AMGN’s trailing-12-month EBIT margin of 36.15% is significantly higher than the 0.81% industry average. Its trailing-12-month levered FCF margin of 33.19% is significantly higher than the 0.29% industry average.
AMGN’s total revenues for the fiscal third quarter that ended September 30, 2023, increased 3.8% year-over-year to $6.90 billion, while its non-GAAP net income increased 5.4% from the prior-year quarter to $2.67 billion.
The company’s non-GAAP operating income increased 3.8% year-over-year to $3.40 billion. Also, its non-GAAP EPS came in at $4.96, representing an increase of 5.5% from the prior-year period.
Analysts expect AMGN’s revenue to grow 6.8% year-over-year to $28.11 billion for the year ending December 2023. Its EPS is estimated to grow 4.9% year-over-year to $18.55 for the same period. It surpassed EPS estimates in three of four trailing quarters. The stock has gained 23.6% over the past six months to close the last trading session at $283.90.
It’s no surprise that AMGN has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Quality and a B for Stability and Sentiment. It is ranked #6 in the same industry.
Beyond what is stated above, we’ve also rated AMGN for Growth, Value and Momentum. Get all AMGN ratings here.
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AMGN shares were trading at $286.46 per share on Wednesday morning, up $2.56 (+0.90%). Year-to-date, AMGN has gained 12.85%, versus a 26.21% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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