Drug stock Vertex Pharmaceuticals is working on a new base just as the stock market attempts to launch a meaningful rally, a good sign that makes this an IBD 50 growth stock to watch.
The nearly 4,000 employees at Boston-based Vertex are involved in making drugs to treat cystic fibrosis as well as infectious diseases like the flu and autoimmune diseases like rheumatoid arthritis.
Quarterly and annual earnings have been chugging along at a fast enough growth pace to earn Vertex an Earnings Per Share Rating of 97, close to the highest possible 99. EPS the past three quarters grew 35%, 34% and 18% on sales growth of 29%, 27% and 22%. Analysts tracked by FactSet see Q2 earnings rising 14% to $3.57, on a 19% sales increase to $2.1 billion.
For all of 2022, Wall Street sees EPS rising 9% to $14.23 on 14% sales growth to $8.06 billion.
VRTX stock's Relative Strength Rating is equally strong at 97, as is its broader Composite Rating at 96.
With such fundamental and technical prowess, this growth stock to watch ranks No. 2 in its biotech industry group, according to IBD Stock Checkup. Regeneron is another stock ranked among the top five in the group that is also a member of the IBD 50. It's also working on a new base.
Drug Stocks: Vertex Delivers Gain
Vertex's strong fundamentals underpin its stock price performance. In three weeks in late March-early April, Vertex delivered a tidy 15% gain after breaking out above a cup base buy point of 255.03. It ran up to 292.75 to an April 14 peak, which is where the current cup base started.
From its April peak, the pharma stock sank back to its 50-day line and then knifed below that line of support a day after reporting mixed first-quarter earnings on May 5. Earnings rose 18% but were a bit below analyst expectations.
But the stock quickly found a bottom, at 233.01, and then did an about-face and proceeded to rally. Three weeks from the low and Vertex stock is already back above its 50-day line. And in its sixth week from its peak, this stock to watch is forming the right side of a cup base. It's 6% below the 292.85 buy point. Watch to see if a handle forms on the right side of the cup, offering an earlier entry.
Another bullish sign is that Vertex's relative strength line is also trending higher and is near its highest level in more than a year.
A Word From The CEO
"Following upon our success in transforming the treatment of cystic fibrosis, Vertex's unique and differentiated R&D strategy continues to deliver with positive Phase 2 proof-of-concept studies in multiple disease areas, and another wave of therapies set to enter the clinic in the second half of this year," Reshma Kewalramani, M.D., Vertex chief executive and president, said in the Q1 earnings release.
"With yet another quarter of strong revenue performance characterized by 22% year-over-year growth, we are well positioned for continued innovation and sustained growth as we work to bring additional transformative medicines to more patients around the globe."
Vertex belongs among drug stocks to watch. Keep an eye out to see if it can continue its run and break out above the buy point. With the stock market in correction, investors should use caution when buying stocks. But a follow-through day confirming a new market uptrend can occur within four days of a bottom, so it pays to keep stocks that are approaching buy points on your watchlists.
