Comparing Concordia Health Group to Valeant! Conclusion
At under $39 per share, Valeant is priced at a dirt-cheap forward multiple of under 3.4 times. Although Valeant is a cheaper stock and could shoot up over 300% to 15 times earnings, it can continue to experience bad headlines, which would bring down the stock.
I like Concordia’s story better. At under $38 per share, Concordia is priced at a forward multiple of 4.3-4.6 times based on November’s adjusted EPS guidance of US$6.29-$6.77. Its multiple can expand to 21.5 times, which would imply price appreciation of almost 400%. Still, if Valeant falls further from any bad news, Concordia is likely to fall with it.
Investors will need to decide if they can stand these volatile stocks, which could rise or fall in the double digits. For example, Valeant fell over 50% in a single day on March 15!
There’s negative sentiment revolving around these biotechnology companies right now. However, investors could potentially make huge gains from these stocks if they’re able to hold for three to five years (if the companies don’t go bankrupt).
If you like the companies after doing your own research, a prudent strategy is to average in to your positions on dips and ensure these companies don’t exceed 2% of your portfolio if you view them as speculative investments.