Shares in SkyePharma (LSE: SKP) and Spire Healthcare (LSE: SPI) are down by 5% and 4% today despite releasing results that were in line with expectations. And, even though both companies have bottom lines that are not particularly impressive, they continue to have upbeat forecasts for the next couple of years. Is this enough, though, to make them more attractive buys than fellow healthcare companies, Shire (LSE: SHP) (NASDAQ: SHPG.US) and BTG (LSE: BTG)?
Results
In the case of SkyePharma, it remains confident regarding its medium term outlook, despite losses widening in 2014 versus 2013. In fact, the drug development company is anticipating a step change in revenue growth during the course of the year, as a number of products launched in recent years are expected to deliver significant top line improvements for the company. Furthermore, 2014’s revenue figure was hit hard by an exceptional cost of £26.6m resulting from the repayment of bonds and restructuring at a manufacturing site, thereby making its results appear more disappointing than they perhaps were.
Meanwhile, Spire Healthcare was hit by reductions in the NHS tariff applicable during the course of 2014, which meant that its reported net profit fell from £102m in 2013 to just £6m in 2014. However, its future could be much more upbeat, with it receiving planning consent to open new hospitals in Manchester and Nottingham, as well as a radiotherapy centre in Essex. And, with Spire Healthcare being well capitalised, it seems poised to capture an increasing share of the UK’s growing independent healthcare market.
Looking Ahead
As mentioned, both SkyePharma and Spire Healthcare are set to post improved figures over the next couple of years. However, much of this appears to already be priced in, with Spire Healthcare trading on a price to earnings growth (PEG) ratio of 4.6, and SkyePharma’s PEG ratio also being high at 3.1. As such, their share prices may come under further pressure even if they are able to deliver on their upbeat forecasts.
This situation contrasts markedly with that of Shire and BTG. For example, Shire has a PEG ratio of 1.2, while BTG’s is just 0.5 – both of which indicate good value and that the two companies’ share prices could move much higher. And, with both stocks being highly profitable at the present time and having relatively strong track records of earnings growth, they appear to be much more appealing investments than SkyePharma and Spire.
Certainly, all four stocks are likely to remain volatile compared to the wider index but, even with this volatility being taken into account, BTG and Shire seem to be worth buying right now.