While small-capitalization biotechnology firms bring much potential to the table, they also represent a source of unpredictability. Nevertheless, for risk-takers, oncology specialist G1 Therapeutics (NASDAQ:GTHX) appears quite enticing. First and foremost, it levers acumen in the burgeoning small-molecule therapeutics space. Second, G1 Therapeutics stock seems undervalued for what speculators may be getting.
Of course, to make the case that GTHX is a bullish idea, an investor must make two critical assumptions. First, experts in the small-molecule ecosystem must be reasonably accurate in terms of projected sector growth. Second, the anticipated revenue haul of the biotech firm — helped perhaps by mitigated losses per share — must come to fruition.
Otherwise, if those two assumptions fail, G1 Therapeutics stock may end up being like many other small-cap players: promising but falling short on the delivery component. Nevertheless, as a high-risk, high-reward idea, GTHX is a tempting proposition. Therefore, under the context of speculation, I am bullish on the company.
G1 Therapeutics Stock Benefits from an Attractive Valuation
As humans, we tend to focus on price first and deal with the justification of the purchase later. So, with that in mind, let’s talk about the price.
Closing Friday’s session at $3.19 per share, G1 Therapeutics stock is “cheap” from a psychological perspective. However, that often leads to a temptation among many retail investors to buy up more securities than they should. A low nominal price doesn’t mean much when you don’t consider the context.
Usually, that’s where plenty of speculative ideas get blasted as non-viable propositions. But that doesn’t quite apply to G1 Therapeutics stock. Currently, shares trade hands at only 1.96X trailing-year sales. That’s much lower than the sector average multiple of 7.04X. Theoretically, then, it’s possible for GTHX to continue rising to grow into a median-level valuation.
Of course, nothing is quite that simple. Indeed, Wall Street analysts believe that the biotech firm is in for some rough waters this year. They’re projecting sales to slip to $72.29 million. If so, that would imply a 12.4% drop from last year’s sales of $82.51 million. Under this framework (and assuming a shares outstanding count of 52.28 million), GTHX stock would be priced around 2.3X projected revenue.
That’s still low but it’s also a noticeably hotter premium than the current price-to-sales ratio. Should that be a concern? In my opinion, not really.
Small-Molecule Drug Market Projected to Rise
Although GHTX stock might encounter some financial headwinds, analysts do expect a recovery in fiscal 2025. That’s when revenue may jump to $93.82 million, implying a nearly 30% lift from forecasted 2024 sales. What’s more, the most optimistic target calls for revenue of $114 million.
It’s not the most prudent course of action to project sales ratios that far into the future. However, assuming that the share count remains the same, at the current share price G1 Therapeutics stock would be carrying a multiple of only 1.78X projected 2025 revenue. That seems to be a real bargain if the analysts’ forecasts hold true. There’s a good possibility that they will.
According to Straits Research, the global small-molecule drug discovery market reached a valuation of $52.32 billion last year. By 2032, the sector could be worth $107.04 billion, implying a compound annual growth rate of 8.3%.
That might be a slight understatement in terms of the growth velocity. According to MarketDigits, the small-molecule space was worth $42.01 billion in 2022. By 2030, the arena could clock in at $83.6 billion, implying a CAGR of just under 9%.
Either way, investors are excited about the opportunity. And while G1 Therapeutics stock is the biggest entity within the small-molecule industry, it doesn’t necessarily need to be. Instead, the underlying company just needs to grab an appropriately sized piece of the pie. Doing that could yield significant upside rewards.
It’s probably the core reason why GTHX stock has jumped nearly 25% in the business week ending July 12. You’re getting a lot for your money.
G1 Therapeutics Stock: Speculative but Sensible
Objectively speaking, there’s no denying that G1 Therapeutics stock is speculative. That’s the label you get when your market cap is lower than $167 million. However, under the context of a high-risk, high-reward play, GTHX makes sense. It’s generating revenue, tied to a burgeoning ecosystem and analysts have reasonable justifications for their bullish targets. That it is legitimately cheap just adds to the temptation.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.