Inflation is slowing, and that could be great news for growth stocks as it potentially opens up the door to lower interest rates. And there are some particularly good growth opportunities within healthcare that investors shouldn't overlook right now. A couple of stocks that Wall Street analysts think could double in value are Viridian Therapeutics (VRDN +0.95%) and Ginkgo Bioworks (DNA +6.56%). Here's a closer look at these two businesses.
1. Viridian Therapeutics
Viridian Therapeutics' market capitalization is at just about $1 billion. Only its collaboration revenue contributes to its top line today. But if the company, which focuses on rare diseases, can get an approved product that it can rely on for long-term growth, this biotech could have plenty of upside.
According to Wall Street analysts, the stock could already jump as high as $45 within the next year or so, which is the consensus analyst price target. The healthcare stock closed at just over $22 last week, meaning that if it were to reach that price target, it would more than double in value.
NASDAQ: VRDN
Key Data Points
There is reason to be optimistic about the company's future as Viridian is working on a treatment for thyroid eye disease (TED). VRDN-001 is in phase 3 trials for its treatment of active TED (which refers to the early stage of the disease), and it's also a possible treatment for chronic TED (the latter phase).
Horizon Therapeutics makes Tepezza, which would be a rival treatment should VRDN-001 obtain approval, and at its peak it could generate up to $4 billion in annual revenue. Analysts are optimistic that if VRDN-001 gets the go-ahead from the Food and Drug Administration, it could carve out a decent market share for itself and be a potential blockbuster drug for the business.
That's why, with VRDN-001 being fairly far along in clinical trials and demonstrating encouraging results thus far, there is a fair bit of bullishness from analysts that the stock could rally. There may even be a short squeeze, as short interest in Viridian's stock is fairly high at 16% and has been climbing in recent months.
VRDN Percent of Float Short data by YCharts
If Viridian can prove short sellers wrong, this is a stock that could be a big winner for long-term investors.
There is, however, ample risk as the company has limited revenue and losses have totaled $129.9 million in the trailing 12 months. It has also issued $291.9 million in common stock during that time, which is not only dilutive for investors but can dampen the stock price.
Year to date, shares of Viridian are down 24%. While there is some attractive upside for the stock, investors need to be aware of the risks involved. This isn't a suitable investment for many investors, particularly those who are risk averse. If you're OK with the risk, however, now may be a great time to buy and hold the stock.
2. Ginkgo Bioworks
Cell programming company Ginkgo Bioworks generated $477.7 million in revenue last year, which represented a 52% growth rate in the top line. Unfortunately, it still wasn't enough to bring its bottom line into the black. During that time, the company's net loss has totaled a whopping $2.1 billion. And over the years, its bottom line has worsened as the company has ramped up its operations, investing heavily in research and development, which on its own eats up over $1 billion in operating expenses.
NYSE: DNA
Key Data Points
The consensus analyst price target for Ginkgo's stock sits at $4.05, which is roughly twice what the stock trades at right now. But analysts have been lowering their price targets and downgrading the stock this year as the continual losses have raised question marks about whether the company does have a viable business on its hands.
Ginkgo has a huge addressable market that could top $4 trillion when you include potential applications in healthcare, food and agriculture, consumer, materials and energy, and other industries. It helps companies make bioengineered products that are better and more efficient than ever before. The caveat is that it could take until 2040 for the company to be able to tap into those potential growth opportunities.
The bigger question I'd have today is this: Even if it does grow, will that ensure that the business becomes profitable? As of now, that's an unknown -- as Ginkgo's sales have grown, so too have its losses.
As a result, Ginkgo is another risky healthcare investment that could have lots of upside. At over $4.2 billion, its market cap is already far higher than Viridian's. The danger is that if Ginkgo doesn't show investors it has a path to profitability, there could be much more room for a decline in its valuation.
Year to date, Ginkgo's stock is up 21% as investors have been a bit more bullish on growth stocks in 2023. But that's not a trend shareholders should count on as the business will need to improve its financials to keep the stock price from falling in the long run. For that reason, I'd hold off on buying Ginkgo's stock just yet.
