Like so many investors, I dream of finding the next stock that could take off like the Rolls-Royce share price (LSE: RR).
The FTSE 100-listed engineering giant’s shares have climbed a staggering 633% over two years and 140% over the last 12 months.
They continue to climb â up 6.38% in the last week â but Rolls-Royce shares now look pricey trading at more than 38 times earnings. That’s double the index average of 15.7 times.
This FTSE 100 stock has smashed the index
CEO Tufan Erginbilgic is still hungry. He’s cutting jobs, streamlining operations and multiplying margins in a bid to lift operating profits from £1.6bn in 2023 to £2.8bn by 2027.
However, I now see this more as a long-term dividend and growth play, for patient investors. And it’s not without risks.
The European Union Aviation Safety Agency is probing Rolls-Royce Trent XWB-97 engines after a “serious incident” involving a Cathay Pacific jet earlier this month. As weâve seen with Boeing, technical problems can multiply once found. Iâm sticking with my Rolls-royce shares but wonât buy more at todayâs high valuation.
So where can I find my next growth spurt? After trawling the FTSE 250 for hidden gems Iâm sorely tempted by biotherapeutics business Puretech Health (LSE: PRTC).
Like Rolls-Royce before the CEO took over, Puretech is in the doldrums. Its shares are down 32.32% over one year. Yesterday (24 September), they hit a five-year low of 141.8p. So whatâs gone wrong?
PureTech specialises in medicines related to the brain, gut, and immune system. It’s been pouring money into researching and developing treatments, and is now pushing a pipeline of 28 therapeutics through US and EU regulatory processes.
The share price may be due a massive recovery
This is a very hit-or-miss process, of course. FTSE 100 giant GSK has been struggling to with this challenge for years and itâs worth more than £60bn. Puretech has a market cap of £363m, a minnow by comparison.
Itâs made a pre-tax loss in each the last three years. 2022 full-year revenues of $15.61m plunged to just $3.33m in 2023. Despite that, it ended the year with cash, cash equivalents and short-term investments totalling $326m.
Thatâs only slightly less than its market cap and the board says that gives it an operational runway into âat least 2027â.
In another positive surprise, PureTech recently treated investors to a $100m share buyback, using its share of proceeds from the $14bn sale of the PureTech-founded Karuna Therapeutics to Bristol-Myers Squibb.
CEO Bharatt Chowrira has talked up the groupâs track record of clinical success, which he says is âsix times the industry averageâ. The problem is that it’s impossible to say whether the current crop is any good. Buying Puretech shares is a gamble as a result.
The three analysts have set a one-year price forecast of 478p. That’s up 214.34% from todayâs 152p. Unsurprisingly, there’s a huge range, from a minimum of 337p to a maximum of 643p. Puretech is a high-risk, high-reward play. I’ll take a small punt, and hope for a Rolls-Royce-sized rally.
The post After hitting a five-year low Iâm betting this hidden gem will rocket like the Rolls-Royce share price appeared first on The Motley Fool UK.
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Harvey Jones has positions in GSK and Rolls-Royce Plc. The Motley Fool UK has recommended GSK and Rolls-Royce Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
