Valuation and subsector shift.
A method often used in assigning valuations to biotech companies has been peer comparison. So if X is the peer of Y (e.g. they belong in the same subsector), and Y has tech value of $MM, then, darn it, poor little favorite X has to be worth at least 0.5 $MM, which represents a mega premium over its current market value, blah, blah, buy, buy, buy.
When subsectors heat up within the sector, one tends to see well-timed PRs or statements by the usual gurus to reaffirm or redefine a given company's focus or programs as to make it fit into the subsector du jour. We saw this a few years ago with angiogenesis shortly after E-day, and we may be seeing some of this today with the red-hot genomics sector. As usual, distinguishing the real from the hype is key. For example, MEDX, clearly an ABGX peer, rotted in the 4-5/share range while the latter soared; it did not take too long for the former to catch up. That was a case of "real."
As subsectors differentially heat up and cool down, the biotech investor needs to watch out for those shifts of convenience. Valuation against the wrong peer group may be dangerous to one's financial health.
PB |
