Vertex Pharmaceuticals (VRTX -0.32%) has a promising healthcare business with many growth opportunities ahead. But with the stock such a hot buy over the past few years and its valuation now hitting the $100 billion mark, has it become too expensive of an investment? Is it time for investors to consider other stocks instead, or can Vertex still be a good buy right now?
Let's dive in and take a look.
Why investors remain optimistic on Vertex
Vertex Pharmaceuticals has become a big name in cystic fibrosis (CF) treatments. And that's where the company makes its money, with blockbuster drug Trikafta/Kaftrio bringing in $8.9 billion in revenue last year. Its growth rate did slip, however, from 35% in 2022 to just 16% in 2023.
Admittedly, if you were just looking at Vertex as a top CF company, you might be tempted to think the stock is overpriced. But growth investors are bullish on Vertex's future and its ability to grow much larger and more diversified.
Earlier this year, the Food and Drug Administration (FDA) granted approval for gene therapy treatment Casgevy, which Vertex has been working on with CRISPR Therapeutics. It has the potential to be a blockbuster treatment for sickle cell disease and transfusion-dependent beta thalassemia, which are blood disorders. At its peak, Casgevy might generate $3.9 billion in revenue. Vertex will need to split the profits on it with CRISPR, but it's a promising growth opportunity for both businesses.
What may be even more exciting is the company's non-opioid pain medication, VX-548. It demonstrated encouraging results in a mid-stage clinical trial, and analysts believe at its peak it could bring in more than $5 billion in sales. Given the opioid crisis in the U.S., it's not hard to see why a non-opioid treatment for pain may be a significant opportunity in healthcare.
While VX-548 isn't approved yet, it's a promising drug candidate that investors should keep an eye on. By the middle of this year, the company expects to file for approval of VX-548 as a treatment for moderate to severe acute pain.
Is Vertex stock too expensive?
In the past three years, shares of Vertex Pharmaceuticals have risen by more than 90%. And with the stock now trading at 29 times its trailing earnings and 11 times revenue, investors are paying a bit of a premium. If, however, you're bullish on the company's future, the outlook may be a bit different.
Based on Vertex's price/earnings-to-growth ratio, or PEG ratio, the stock could look like a cheap buy. With a PEG ratio of just 0.5, Vertex's value is attractive; normally, any PEG ratio below 1 implies that it's a cheap buy given the future growth that analysts are expecting.
In the short run, however, analysts are less bullish, with the consensus analyst price target for Vertex set at $420, suggesting a near-term upside of just 4% from where it trades right now. But price targets normally look at just the next 12 to 18 months. If you're a long-term investor, there could be more gains to be made over a longer time frame.
Should you buy, sell, or hold Vertex stock?
Vertex has some promising growth potential ahead and it isn't so wildly overpriced to suggest that it's worth selling the stock today. If you already own it, it's worth hanging on to it as the stock doesn't appear to be in danger of going over a cliff anytime soon.
The bigger question is for those who don't already own Vertex's stock. But as long as you're willing to invest in the business for multiple years at least, then it may still generate significant gains for you. If the company is moving ahead with regulatory filings for VX-548, it likely has confidence that the drug's performance has been strong enough to warrant approval from regulators.
And with Casgevy obtaining approval for multiple indications, Vertex already has a new product it can rely on for future growth, in addition to its already strong CF portfolio. Vertex's stock is down this year but in the long run this can still make for an excellent investment.
