Many companies like to claim that they have revolutionary, game-changing products. Few live up to the hype.
Novocure (NVCR -0.89%) could be an exception. Its tumor-treating fields (TTFields) therapy uses electrical signals to disrupt the division of tumor cells.
But just because a company has a potentially game-changing product doesn't mean that its stock is necessarily a great pick. There are other factors to consider. Is Novocure stock a buy right now? Here are the bull and bear cases.
Bull case: Major catalysts on the way
Keith Speights: Throw out the year-to-date stock performance. Ignore the commonly used valuation metrics and the latest quarterly financial results. What really matters with Novocure is that it has multiple major catalysts on the way.
Novocure executive chairman Bill Doyle said in the third-quarter conference call that the data readouts next year from late-stage studies of TTFields targeting non-small cell lung cancer (NSCLC) and ovarian cancer "should be transformational" for the company. He's right.
The first results in NSCLC will be announced in January 2023. The ovarian cancer data will come later in the year. They'll be followed by results from two other pivotal studies targeting brain metastases and pancreatic cancer in 2024.
These four indications represent a market opportunity that's 14 times larger than Novocure's current market. If the late-stage results are positive (and there's reason to be optimistic), these catalysts should light a fire beneath the stock.
Bear case: A better entry point awaits
George Budwell: Medical-device upstart Novocure is definitely an intriguing innovation play. The company's TTFields devices, including Optune and Optune Lua, are already proving to be a major step forward in terms of extending the lives of patients with hard-to-treat malignancies like newly diagnosed glioblastoma.
There's no denying this fact. As a result, I'm not overly bearish on this company or its stock.
I do, however, think Novocure's shares are fairly valued at current levels. Speaking to this point, Novocure's shares are presently trading at 13.5 times Wall Street's high-end sales estimate for 2023. That's almost perfectly in tune with the prevailing industry average price-to-sales ratio for medtech stocks, in general. Put simply, the market seems to have already priced in the near-term upside potential from Novocure's late-stage pipeline at this point.
Complicating matters further is the fact that Novocure is cash-flow negative at present. That's normal for medtech companies at this stage of their development, but this moody market hasn't been kind to unprofitable healthcare companies throughout the course of 2022.
Novocure, in fact, has been a wildly volatile equity this year as a result of these unfavorable market conditions. Unfortunately, healthcare stocks probably won't calm down until the Federal Reserve pivots on its aggressive interest-rate-hike agenda, an event that doesn't appear likely to happen until late next year.
What's the bottom line? If you already own shares of Novocure, my view is that they're worth holding on to for the long haul. But if you're watching it from the sidelines, the best course of action might be to wait for a more attractive entry point.
What does Wall Street think?
One Wall Street analyst surveyed by Refinitiv seems to agree with the moderately bearish view about Novocure and rates the stock as a hold. However, five analysts recommend buying the stock, with two of them rating Novocure as a strong buy.
The consensus 12-month price target reflects an upside potential of nearly 19%. Despite some of Novocure's current negatives, Wall Street appears to be bullish overall about the stock.
