Tesla stock might've made investors rich over the last few years, gaining more than 599.9% since late 2019, but 2022 has been a rough year for the company, with its shares losing slightly more than half their value amid a punishing bear market. In contrast, a little-known biotech called Catalyst Pharmaceuticals (CPRX 2.65%) gained 303% in 2022, and there's reason to believe that there's still plenty of upside to come.
In fact, the company is ripe for a purchase, and there's reason to believe it might continue to smash Tesla's return in 2023 and beyond. Here's why.
Entering new markets means more growth is likely on the way
Catalyst owns the license to sell a medicine named Firdapse, which treats Lambert-Eaton Myasthenic Syndrome (LEMS), a rare neurological illness that causes muscle weakness and difficulty in performing everyday functional movements like getting out of bed or walking up a flight of stairs without stumbling. Firdapse is the only medicine that's indicated specifically to treat LEMS, which makes it a first-line treatment by definition. And that means Catalyst has had the market for LEMS drugs largely to itself since Firdapse's launch in early 2019.
In the third quarter, its revenue rose by a shocking 59.3% year over year to reach $57.2 million, and its quarterly net income also popped by 144.4%. Firdapse is currently commercialized in the U.S. and Canada, and Japan is up next. Once the company has completed the confirmatory clinical trial requested by Japanese regulators, which is expected to be sometime next year, it'll almost certainly be able to enter the market there. And after hitting specific commercialization milestones in Japan, its licensing terms are expandable, paving the way to commercializing Firdapse in Asia and Latin America, too.
In other words, there's a long runway of growth ahead, and it won't require highly risky research and development (R&D) work to get there, just the relatively safe process of replicating the results of prior studies to the satisfaction of regulators. What's more, management is also on the prowl for tempting acquisition targets to expand the company's rare disease portfolio. And with more than $256 million in cash and trailing-12-month free cash flow (FCF) of above $95 million, it has plenty of dry powder to do exactly that.
With an average valuation, this stock's bull run could easily continue
Surprisingly, Catalyst's stock isn't overpriced. Its price-to-earnings (P/E) ratio is just under 27.5, which is actually a touch lower than the biotechnology industry's average P/E of 28.6. That means there's very little downside risk of investors fleeing to businesses with more grounded valuations in the event of a major market disruption. Likewise, it means investors have the opportunity to somewhat inexpensively buy shares of a company that Wall Street analysts expect to experience faster-than-average growth over the next year, and perhaps even beyond.
And while comparisons between Catalyst and Tesla are unlikely to be very enlightening due to the dramatically different sizes and lines of business that the two are engaged in, the biotech has a solid chance of continuing its outperformance relative to the carmaker for one simple reason. Tesla's trailing-12-month revenue is $74.8 billion, a sum that's many times the size of Catalyst's top line. It's much easier for Catalyst to grow from management's estimate of $205 million in sales this year to reach $250 million next year, as analysts are expecting, than it is to add the billions and billions of revenue that Tesla would need to grow by the same proportion. Smaller companies have an easier time expanding, especially when there's plenty of low-hanging fruit available from entering new markets.
So, buying Catalyst Pharmaceuticals stock right now will probably be a better investment than Tesla, and its looming penetration of the Japanese market could drive it to beat the market over the next several years, too. While it's undeniably still a somewhat risky biotech stock, it's important to recognize that the company's success with its LEMS drug has made it significantly less risky, as it's now profitable and generating enough cash to fund further growth for the foreseeable future. Therefore, while it probably isn't the right stock for you if you're planning to retire in the next few years, if you're looking to start a long-term position in a quality biotech at a fair price, it's a good idea to buy some shares of Catalyst Pharmaceuticals today.
