This time last year, I had PureTech Health (LSE: PRTC) on my list of growth stocks to consider buying, based on its long-term outlook.
It wasn’t yet in profit, and that was a key risk. A year on, the share price has lost 20%. But it’s still up 22% in five years. And the shares have so far ticked up a few percent on H1 results day, 29 August 2023.
Buy the dip?
A look over these latest results makes me think it might be one to buy on the dip.
The same risk from a year ago is still with us, though. There’s no bottom-line profit yet, and forecasts don’t show any between now and 2025.
A lot of ‘profit tomorrow’ companies end up running short of cash. They then need to seek new funding, and early shareholders can be diluted out of it.
And that can be a big risk with early-stage biotech firms. They can often burn a lot of cash before they reach profit. But I’m seeing a healthy cash situation here.
Strong cash pile
As of 30 June, PureTech had $350.5m in cash and equivalents on the books. Operating expenses for the half came to $79.3m. So it looks to me like there’s a bit of a buffer there.
We saw a $200m net increase in cash and equivalents for the period. But the company did say: “Our cash flows may fluctuate and are difficult to forecast and will depend on many factors.“
The firm used $65.1m cash in its operations, with the net rise coming from a mix of investing and financing activities.
The whole financing picture looks complex, and I’d want to dig into it further before I’d invest. But it does look like the board has it under control. And I see less cash flow risk here than with other growth stock candidates.
The meat
So, what’s the company about, and why do I feel bullish?
Puretech is developing treatments for a wide range of ailments, including inflammatory, fibrotic and immunological conditions, intractable cancers, lymphatic & gastrointestinal diseases, neurological & neuropsychological disorders… and others.
All of those are problems that are on the rise in developed nations with ageing populations. And a good few of the firm’s trials and development projects seem to be going well.
It might only need a few current developments to turn into blockbusters for PureTech shares to climb.
Alternatively, early stage biotech companies are often bought up by big pharma. And it can happen by the time they look like they’re approaching payday. So that’s another possible route to long-term value being realised.
Time to buy?
There’s always a fair bit of risk buying at this stage in growth stocks. Still, I think a younger me from my growth investor days would buy PureTech Health shares now.
As it is, I think we could see a fair bit more share price volatility in the next few years. So I’ll hold back for now. But I’ll be keen to see what the full year brings.
