Growth stocks have performed surprisingly well in 2023. Despite ever-rising interest rates, a possible recession, and a regional banking crisis, the growth-oriented Nasdaq Composite has ticked higher by an impressive 14.8% so far this year. 

Which growth stocks ought to continue to march northward in the second quarter of the year and beyond? Innovation juggernaut CRISPR Therapeutics (CRSP 1.92%) has crushed the broader markets through the first four months of 2023. This trend seems likely to continue due to its underappreciated pipeline and prospects as a top buyout candidate. Read on to find out more.

CRSP Chart

CRSP data by YCharts

The dawn of a new era 

A decade ago, altering specific sequences of genomic human DNA with the CRISPR/Cas9 platform was nothing more than an interesting idea. Last month, CRISPR and partner Vertex Pharmaceuticals (VRTX -0.69%) completed the rolling submission of the Biologics Licensing Applications for exagamglogene autotemcel (exa-cel) for the rare blood disorders sickle cell disease (SCD) and transfusion-dependent beta thalassemia (TDT).

Exa-cel is an autologous, ex vivo CRISPR/Cas9 gene-edited therapy that enables a patient's hematopoietic stem cells to produce high levels of fetal hemoglobin in red blood cells. The fact that this cutting-edge tech progressed all the way from an intriguing concept to a potential game-changing therapy for SCD and TDT in roughly 10 years' time is a testament to the unique talents of CRISPR's clinical team and upper management.

Yet the market doesn't seem to fully appreciate this landmark advancement in human medicine. Despite exa-cel's potential to top $2 billion in annual sales before the end of the decade, CRISPR's stock is trading at approximately 2.1 times its last stated cash position. That's not exactly a premium valuation for a company with a potential blockbuster product under review and a pipeline that could bend the curve on numerous hard-to-treat diseases such as diabetes and various cancers. 

What's behind this meager valuation? First up, CRISPR and Vertex have a revenue-sharing agreement in place for exa-cel, so CRISPR won't enjoy the full impact of exa-cel's commercialization (assuming approval) for SCD and TDT. Next up, exa-cel is set to compete in these indications against Bluebird Bio's gene therapy offerings, which creates additional uncertainty about its ultimate commercial potential. Lastly, gene-edited products are inherently cumbersome from a logistical standpoint for patients and clinicians alike. Technical hurdles, in turn, may lead to a slow ramp for exa-cel upon approval.

What's the investing thesis?

So why is CRISPR's stock a strong buy right now? It all boils down to the fact that the company's gene-editing platform is on the cusp of becoming a proven platform via the potential approval of exa-cel. An approval ought to alter perceptions among top money managers about the risk-to-reward ratio for the company's other high-value pipeline candidates. The highlight here is that CRISPR is targeting some of the largest and fastest-growing indications within the diverse realm of human diseases.

Of course, CRISPR is almost guaranteed to miss the mark in several of these high-value indications. No biopharma company has a 100% success rate, after all. But the market doesn't seem to be valuing CRISPR's clinical pipeline at all, which doesn't make a whole lot of sense in light of the rapid development of exa-cel. 

Another important issue to consider is that big pharma has been bargain hunting in the wake of the downturn in biotech valuations over the last 20 months. CRISPR's favorable risk-to-reward ratio, unique therapeutic platform, and top-shelf talent could make it a highly attractive target in this environment.  

All told, savvy investors probably shouldn't hesitate to take advantage of the market's unwarranted pessimism toward CRISPR. This undervalued biotech growth stock, after all, has all the ingredients necessary to be a long-term winner for shareholders.