Is the Abcam share price too expensive?

The Abcam share price is volatile as speculation keeps it in the news. Has it got the potential to soar or is it overpriced?

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Valued at £2.9bn, Abcam (LSE:ABC) is currently the second-largest AIM company by market cap. It specialises in life sciences with a focus on antibodies, assays, proteins, and various diagnostic solutions. Between October 2014 and August 2018, the Abcam share price steadily rose 280%. Since then, it has repeatedly plunged and climbed in a volatile fashion. In recent weeks, interest in the stock has been reignited. This has caused the Abcam share price to rise 23% in its recovery from the march market crash.

Acquisitions and partnerships

At the end of last year, it acquired Expedeon’s proteomics and immunology business and more recently announced the acquisition of Marker Gene Technologies. Both these acquisitions complement Abcam’s business and should help increase its capabilities.

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This week it was announced that Abcam will be partnering with Cancer Research UK to generate new cancer-fighting therapies. Abcam will develop and supply unique antibodies exclusively to CRU’s funded researchers. The intention is to accelerate cancer research using custom protein-based reagents to enhance the understanding of cancer biology and potentially discover novel therapies. This is a prestigious partnership to have, but just last month, Cancer Research said £150m could be cut from its annual research funding as the pandemic decimates its income.

Is the Abcam share price sustainable?

Abcam operates an interesting business with many facets, but its growth has partly been fuelled by acquisitions. This, along with renewed enthusiasm for the future of healthcare, has led to much speculation around the future of this stock. I think this has led to its ridiculously high price-to-earnings (P/E) ratio of 61, which makes plain the Abcam share price is expensive.

It has been somewhat affected by the coronavirus crisis and temporarily closed several labs. It now says full-year revenues will be between £14m to £16m lower than expected. Its margins were being squeezed earlier in the year and the downturn could cause further pressure. Abcam offers a dividend yield of 0.9% but this is at risk of a cut if its revenues continue to fall. With coronavirus cases still rising, I imagine uncertainty will continue for some time. As I think this is an overpriced stock, I will not be rushing to buy.

Fighting a losing battle

Indivior (LSE: INDV) is a £634m drug company specialising in the development of Suboxone Film, an opioid addiction treatment. Indivior has a P/E of 6 and earnings per share are 14. It does not offer a dividend. Unfortunately, it is wrangled in a legal dispute in which its former CEO recently pleaded guilty to mismarketing the product in the US. Legal proceedings in relation to allegations of fraud surrounding the Suboxone product continue. It recently estimated this may cost the group $621m to settle.

It has been around for over 25 years and has considerable expertise in fighting the opioid crisis, which is far from being eradicated. Prior to 2014, Indivior was a subsidiary of Reckitt Benckiser Group. They are now entirely separate.

Two years ago, the Indivior share price was peaking over £4.90 a share. It then fell to a low of 30p in April 2019 and is now languishing at around 85p a share. Despite fighting a rising health crisis in opioid addiction, it does not look like Indivior will be rolling in profits soon. I would steer clear of both these life science stocks.

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Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended Abcam. 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.

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