Owning growth stocks in a bear market can be painful; Frightened investors often flee for safety, and growth stocks, usually underproven or sometimes unprofitable, can become very unpopular on Wall Street. But market trickery doesn’t mean a stock can’t be a good investment; Growth stocks with strong fundamentals can roar during subsequent bull markets, generating huge investment returns.
Consider two healthcare stocks with similar market caps, CRISPR therapeutics (CRSP 0.23%) And Inmode (INMD), each worth about $3 billion. The stocks trade 76% and 62% below their respective highs, but a company may be better positioned to build wealth for shareholders going forward. Below I’ll outline which stocks can appreciate fivefold first.
At the cutting edge of healthcare
CRISPR Therapeutics is a gene-editing company that uses CRISPR/Cas9 technology to develop gene-based therapies to treat conditions and diseases. It uses Cas9 and an enzyme called RNA to add, edit or remove parts of a genome. Scientists can precisely modify a genome, which will repair the cell, causing a DNA mutation with the desired effect. A co-discoverer of CRISPR, Emmanuelle Charpentier, helped pioneer CRISPR therapeutics.
The company is now developing a number of genetic therapies to treat conditions such as haemoglobinopathies, immuno-oncology, regenerative medicine and in vivo therapy (in vivo means the genetic material is delivered directly into the patient’s body or target organ). CRISPR currently has five products in clinical trials, three through collaborations and two wholly owned by the company. CRISPR has not yet brought any products to market; It is essentially a pre-revenue business, issuing equity over time to fund its pipeline. The stock’s $3 billion-plus market cap is how investors value CRISPR’s expected success once products pass clinical trials and come to market.
The cosmetic surgery market is being disrupted
InMode is a medical technology company that manufactures and sells devices for various non-invasive cosmetic surgery procedures. The equipment uses radio frequencies and lasers to shape body parts, remove hair or tighten skin. Inmode’s procedures go further than topical treatments but don’t carry all the painful effects of traditional plastic surgery.
The company reported revenue of $121 million in the third quarter of 2022, a 29% year-over-year increase. Additionally, InMode is highly profitable; It converts about 48% of its revenue into free cash flow. InMode can operate at high-profit margins because it outsources its manufacturing and is headquartered in Israel. Its expected corporate tax rate will range from about 7.5% to 10%, compared to the 21% corporate rate in the US.
Why CRISPR Stock May Outperform Inmode
Today, CRISPR Therapeutics and InMod carry roughly the same market cap, but where the stocks could go is important. InMode is a profitable and steadily growing company, but it’s hard to see it reporting billions in revenue anytime soon Analysts estimate that InMode will clear annual revenue of $600 million by fiscal 2024 with a growth rate in the mid-teens. While the stock’s declining price-to-earnings (P/E) ratio has depressed valuations to just 17, the stock’s long-term median of 25 suggests it will take many years to grow fivefold.
Meanwhile, CRISPR therapeutics may ultimately be the late bloomers that grow up to steal the spotlight. Analyst estimates call for revenue of $1.65 billion in fiscal 2026, which would likely take CRISPR from nearly zero revenue to more than double InMode’s sales over time. Then you factor in how much the bear market beat down the stock; CRISPR has $1.9 billion in cash against zero debt on its balance sheet. In other words, About two-thirds The stock’s current market cap is cash.
InMode might be the safe bet; It is a proven business with steady growth and substantial profits. However, it may have a low ceiling and CRISPR does not seem to have the potential for explosive growth. You must also factor in the risks of CRISPR stock, including the pass/fail nature of bringing new therapies to market (clinical trials). However, the potential impact that CRISPR/Cas9 technology could have on healthcare makes the stock much more likely to be a multibagger for shareholders, especially now that the stock has fallen so much.
Justin Pope has no positions in any of the stocks mentioned. The Motley Fool has and recommends positions in CRISPR Therapeutics and InMode Motley Fool has a revealing policy.