The pharmaceutical industry is growing as a result of improved technology such as artificial intelligence (AI), new drug discoveries, and rising medical needs. Given the industry’s solid growth prospects, investors could consider buying fundamentally sound pharma stocks such as Spero Therapeutics, Inc. (SPRO), GoodRx Holdings, Inc. (GDRX) and Kamada Ltd. (KMDA) for solid returns.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the pharma industry.
AI is transforming the pharmaceutical industry through innovation, process optimization, strategic collaborations, and shifting hiring trends. AI has changed drug discovery by processing vast amounts of data and more efficiently uncovering potential treatment candidates. AI-powered robots are being used in manufacturing operations to increase productivity and eliminate errors.
Also, overwhelming drug demand is expected to bode well for the pharmaceutical industry. The global drug formulation market is projected to grow at a CAGR of 6.1% from 2023 to 2032.
According to Statista, worldwide pharmaceutical revenues are expected to grow at a CAGR of 5.8% to reach $1.48 trillion by 2028. Oncology Drugs is the industry’s largest market, with expected market volume of $188.20 billion in 2023.
Moreover, investors’ interest in pharmaceutical stocks can be gauged from VanEck Pharmaceutical ETF’s (PPH) 8.9% returns over the past year.
Considering these conducive trends, let’s look at the fundamentals of the three Medical – Pharmaceuticals stock picks, beginning with number 3.
Stock #3: Spero Therapeutics, Inc. (SPRO)
SPRO is a clinical-stage biopharmaceutical company that focuses on identifying, developing, and commercializing novel treatments for multi-drug resistant (MDR) bacterial infections and rare diseases in the United States
SPRO’s forward Price/Sales of 1.24x is 63.3% lower than the industry average of 3.39x.
SPRO’s trailing-12-month asset turnover ratio of 0.67x is 76.1% higher than the 0.38x industry average.
SPRO’s total revenues for the fiscal second quarter that ended June 30, 2023, increased 36.3% year-over-year to $2.72 million. Also, net loss decreased 58.5% year-over-year to $11.91 million and net loss per share attributable to common shareholders per share decreased 73.6% year-over-year to $0.23.
Street expects SPRO’s revenue to increase 16.8% year-over-year to $51.55 million for the year ending December 2024. Shares of SPRO has lost marginally intraday to close the last trading session at $1.04.
SPRO’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
SPRO also has an A grade for Value and a B for Sentiment. It is ranked #28 out of 156 stocks in the Medical – Pharmaceuticals industry. Click here to see the additional POWR Ratings for Growth, Stability, Momentum and Quality for SPRO.
Stock #2: GoodRx Holdings, Inc. (GDRX)
GDRX provides a consumer-focused digital healthcare platform in the United States. The company offers consumers free access to branded and generic medications, medical provider consultations via telehealth, and comprehensive healthcare research and information.
On September 21, 2023 GDRX offered new savings on antivirals, medications, and vaccines for the upcoming cold and flu season. Last season, the company saved Americans more than $20 million on cold and flu treatments. With these significant savings, Americans can find affordable ways to prevent or treat seasonal illnesses, regardless of insurance status.
GDRX’s forward EV/Sales of 2.69x is 13.1% lower than the industry average of 3.10x. Its forward Price/Sales of 2.76x is 18.6% lower than the industry average of 3.39x.
GDRX’s trailing-12-month EBIT margin of 7.17% is significantly higher than the industry averages of 0.24%. Its trailing-12-month asset turnover ratio of 0.45x is 19.7% higher than the 0.38x industry average.
During the fiscal second quarter that ended June 30, 2023, GDRX’s revenue stood at $189.68 million. Its adjusted operating income and adjusted EBITDA increased 6.8% and 13.2% year-over-year to $42.97 million and $53.47 million, respectively.
Also, its adjusted net income and adjusted EPS stood at $28.39 million and $0.07, up 4.4% and 16.7% year-over-year, respectively for the same quarter.
The consensus revenue estimate of 837.16 million for the year ending December 2024 represents an 10.9% increase year-over-year. Its EPS is expected to grow at 87.6% year-over-year to $0.09 for the same period. It surpassed EPS estimates in all four trailing quarters. GDRX’s shares have gained 8.7% over the past nine months to close the last trading session at $5.23.
GDRX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #22 in the same industry. It has an A grade for Growth and a B for Quality. To see additional GDRX’s ratings for Value, Sentiment, Momentum, and Stability, click here.
Stock #1: Kamada Ltd. (KMDA)
Based in Rehovot, Israel, KMDA supplies plasma-derived protein therapeutics. Its segments include Proprietary Products and Distribution. The company’s portfolio encompasses treatments for immune thrombocytopenic purpura, hepatitis B prevention in transplants, varicella post-exposure, intravenous AATD, and more.
KMDA’s forward EV/Sales of 1.70x is 45% lower than the industry average of 3.10x. Its forward Price/Sales of 1.71x is 49.6% lower than the industry average of 3.39x.
KMDA’s trailing-12-month EBIT margin of 6.52% is significantly higher than the 0.24% industry average. Its trailing-12-month levered FCF margin of 7.76% is significantly higher than the 0.45% industry average.
For the fiscal second quarter that ended June 30, 2023, KMDA’s total revenues increased 58.7% year-over-year to $37.44 million, and its gross profit grew 99.4% year-over-year to $14.44 million. In addition, adjusted EBITDA grew 357.6% year-over-year to $6.05 million.
Also, its net income and EPS came in at $1.8 million and $0.04, compared to a net loss and loss per share of $3.9 million and $0.09, in the same period last year.
Analysts expect KMDA’s revenue to increase 10.2% year-over-year to $158.64 million for the fiscal year ending December 2024. The company’s EPS for the same year is expected to grow 110% from the prior year to $0.21. It surpassed EPS estimates in three out of four trailing quarters. The stock has gained 5.5% year-to-date to close the last trading session at $4.23.
It’s no surprise that KMDA has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Growth, Value and Sentiment. It is ranked #14 in the same industry.
Beyond what is stated above, we’ve also rated KMDA for Stability, Momentum and Quality. Get all KMDA ratings here.
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GDRX shares were trading at $5.22 per share on Thursday afternoon, down $0.01 (-0.19%). Year-to-date, GDRX has gained 12.02%, versus a 9.27% 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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