Is the current market landscape ripe for investment in these healthcare stocks with promising prospects?
A slackening inflation could be a windfall for growth stocks as it may lead to reduced interest rates. The healthcare sector presents some notable growth potential investors may want to consider. Wall Street analysts suggest that Viridian Therapeutics (NASDAQ: VRDN) and Ginkgo Bioworks (NYSE: DNA) are two stocks that could double their value. Let’s delve into the details of these two companies.
1. Viridian Therapeutics
Currently, Viridian Therapeutics commands a market capitalization of roughly $1 billion, and its collaborative revenue presently forms its primary income. If the company, committed to treating rare diseases, succeeds in procuring approval for a product that promises sustained growth, the biotech firm could witness considerable growth.
Wall Street analysts predict the company’s stock could reach $45 within the next year, the agreed-upon analyst price target. Since the healthcare stock closed last week at over $22, hitting this target would double its value.
The company’s future appears promising as Viridian is developing a treatment for thyroid eye disease (TED). The drug, VRDN-001, is in phase 3 trials for treating active TED (the early stage of the disease) and might also be a potential treatment for chronic TED (the later step).
Horizon Therapeutics manufactures Tepezza, a potential competitor to VRDN-001, which could generate up to $4 billion in annual revenue at its peak. Analysts are hopeful that if VRDN-001 receives FDA approval, it could gain a decent market share and possibly become a blockbuster drug for the company.
Given the advanced stage of clinical trials and promising results of VRDN-001, analysts are largely optimistic about the stock’s potential to rally. The store may experience a short squeeze, given that Viridian’s short interest is relatively high at 16% and has been on an upward trend in recent months.
Viridian could be a game-changer for long-term investors if it manages to discredit the short sellers.
However, the company does come with risks as it has limited revenue and has recorded losses amounting to $129.9 million over the past 12 months. During this period, it has also issued $291.9 million in common stock, potentially diluting investor shares and dampening the stock price.
Viridian’s shares have fallen 24% since the start of the year. Investors must know the inherent risks when the stock presents significant growth potential. It may not be a suitable investment for all, especially those with a low-risk tolerance. However, for those willing to shoulder the chance, this could be an opportune moment to invest and hold the stock.
2. Ginkgo Bioworks
Ginkgo Bioworks, a cell programming company, generated revenue of $477.7 million last year, marking a 52% growth in its top line. Despite this, it was insufficient to generate a net profit. The company’s net loss was a significant $2.1 billion. Over time, as the company expands its operations and invests heavily in research and development, its bottom line has deteriorated.
Ginkgo’s stock’s consensus analyst price target is around $4.05, nearly double its current trading price. However, analysts have been revising their price targets and downgrading the stock this year due to the continuing losses, leading to questions about the viability of the company’s business.
Ginkgo has a substantial potential market, which could exceed $4 trillion, factoring in potential applications in healthcare, food and agriculture, consumer products, materials and energy, and other sectors. It assists companies in creating bioengineered products that are more effective and efficient. However, it could be until 2040 before the company can fully exploit these potential growth opportunities.
A significant question today is: Will growth ensure profitability for the business? As Ginkgo’s sales have grown, so have its losses, leaving this question unanswered.
Ginkgo, therefore, represents another high-risk healthcare investment with potentially high returns. With a market cap exceeding $4.2 billion, it surpasses Viridian. The risk lies in the potential for a significant decline in its valuation if Ginkgo fails to demonstrate a path to profitability.
So far this year, Ginkgo’s stock has risen by 21%, reflecting the generally positive sentiment towards growth stocks in 2023. However, investors should not solely rely on this trend, as the business will need to improve its financial performance to prevent a long-term decrease in its stock price. For this reason, I would advise against purchasing Ginkgo’s stock for now.
The healthcare sector offers numerous growth opportunities, even amidst economic fluctuations. While Viridian Therapeutics and Ginkgo Bioworks have the potential for considerable growth, they also present substantial risks due to their financial situations. Consequently, investments in these stocks should be carefully weighed against one’s risk tolerance and investment objectives. Nonetheless, these companies could offer a promising upside for those with a greater appetite for risk and a long-term investment horizon.
