Gene-editing leader CRISPR Therapeutics (CRSP -0.27%) has generated sizzling returns for investors over the last 12 months. But one analyst thinks the biotech stock can go much higher. In this Motley Fool Live video, recorded on March 10, Fool.com contributors Keith Speights and Brian Orelli discuss whether or not CRISPR Therapeutics can soar nearly 30% from current levels as one top analyst predicts.
Keith Speights: We don't talk a lot about analysts' views on stocks and for good reason because in many cases we really don't care what the analysts think, [laughter] right? But JPMorgan recently initiated coverage on a really popular biotech stock, CRISPR Therapeutics, CRSP is the ticker there.
J.P. Morgan set a one-year price target of $160 for CRISPR Therapeutics, and that's nearly 30% above the stock's current price. It was even a bigger premium before yesterday because CRISPR Therapeutics stock soared yesterday. Do you think CRISPR Therapeutics is really poised to jump that much over the next 12 months?
Brian Orelli: I mean, maybe. I think in the short-term. It's really difficult to value development-stage biotech companies. It's what the investors want to assign it at that time, and it's risk-adjusted.
How likely do we think that they're going to be able to develop these drugs? If you're a long-term investor and have confidence in the pipeline, you don't really need to worry about the intervening valuations. You're investing for five, 10 years down the line, and the difference between the value then and the value now is going to be your return and if it goes up and down in the short-term, that's irrelevant.
I like to try to value things based on risk-adjusted returns. I try to say, it's going to be valued this much because of these drugs, and then we can back it out and say, OK, that's going to be double or triple from here and how likely do I think that it's going to have success. A $9.5 billion market cap now, it will be $12.1 billion, at $160 a share of the price target of the analysts.
Then that assumes no dilution so the market cap will be even higher if they sell shares in the secondaries. That's a lot of sales already priced into the company, $12.1 billion. Even if you want to assign it at 10 price-to-sales ratio, you're already pricing in 1.2 billion in sales. It's pricey to me, but maybe, in the long run, 10 years from now, it doesn't matter that much.