Vertex Pharmaceuticals (VRTX 0.35%) is a fast-growing pharmaceutical company that investors have been bullish on for years. The business generates billions in revenue from cystic fibrosis drugs, and it has been working on diversifying its portfolio to include a wider array of products.
Today, the stock has a market capitalization of $115 billion -- that's even higher than industry stalwart Bristol Myers Squibb, which is worth approximately $88 billion. Given Vertex's impressive growth over the years and its not-so-modest valuation, is it too late to invest in the stock, and could it finally be approaching a peak? Or is there a path for Vertex's stock to go even higher?
Vertex's growth rate has been slowing down
Vertex's business has been growing well over the years, but the one knock on the healthcare stock today is that it's just not generating the type of growth it may need to in order to remain a hot buy. While revenue has increased by 59% from $6.2 billion in 2020 to $9.9 billion in 2023, its quarterly year-over-year growth rate tells a different story.
VRTX Revenue (Quarterly YoY Growth) data by YCharts
At 13%, Vertex's most recent growth rate isn't what investors might expect for a stock that's trading at close to 30 times earnings, especially if it's to go much higher than where it is right now.
A couple of potential growth catalysts on the horizon
The good news for investors, however, is that the company's financials could soon get a boost. Earlier this year, the company's gene editing therapy, Casgevy, obtained approval from regulators to treat transfusion-dependent beta thalassemia. Prior to that, the treatment was approved for people with sickle cell disease as well. At its peak, Casgevy could be a blockbuster drug that generates in excess of $2 billion in annual revenue.
Another big opportunity for the business is for its pain medication, VX-548. In clinical trials, it has demonstrated effectiveness in helping treat acute pain, and the non-opioid medication may obtain approval from regulators for that indication this year. There's also the potential for VX-548 to be used to treat chronic pain, which may be an even bigger opportunity for the drug. Analysts project that peak sales for VX-548 could surpass $5 billion.
Even more opportunities may be down the road
Vertex has many projects in its pipeline, which could lead to even more opportunities in the future. It has multiple trials ongoing for possible treatments for type 1 diabetes. This year, one of its more promising drug candidates, inaxaplin, has entered late-stage trials to study its effectiveness as a treatment for APOL1-mediated kidney disease.
The company has a lot of opportunities out there, and it also continues to invest in more. On April 10, it announced plans to acquire Alpine Immune Sciences for $4.9 billion. Through that acquisition, Vertex will acquire povetacicept, which it refers to as a potential "pipeline-in-a-product," with the opportunity to treat multiple diseases, including IgA nephropathy, a type of kidney disease.
In the long run, Vertex could be a cheap buy
Despite Vertex's strong gains over the past few years, this can still be an excellent stock to buy right now. Trading at a price/earnings-to-growth ratio, or PEG, of just 0.6, Vertex may even turn out to be a cheap stock to own if you're planning on holding it for the long haul.
