No matter how convinced I am of the investment case for a particular growth stock, I’d never put 100% of my cash in just one share. Diversification is an essential pillar of my investing strategy, since it protects my portfolio against the possibility of a devastating company-specific event.
But what if I were limited to buying a single UK growth stock? With so many choices available for investors, it’s hard to choose one company above all others. I was curious to see if ChatGPT had a spectacular suggestion I might have missed.
Genetics for growth
The AI chatbot started with boilerplate wording cautioning against going all-in on one growth stock, describing it as “extremely risky“. I agree. But it played along with my crazy idea, selecting Oxford Biomedica (LSE:OXB) as the stand-out share to consider.
I must admit, I’d only come across this FTSE 250 gene and cell therapy business before in passing during the pandemic. Back in 2020, the firm signed a prominent manufacturing agreement with AstraZeneca to produce Covid-19 vaccines. Naturally, ChatGPT’s answer encouraged me to look deeper.
The company, which now trades as OXB, started life as a spin-out from the University of Oxford in 1995. Today, it’s a pure contract development and manufacturing organisation (CDMO).
This means OXB’s boffins handle complex lab work and large-scale production so its customers don’t have to. The firm serves major pharma companies, such as Novartis and Bristol Myers Squibb, by manufacturing viral vectors and gene therapy components.
Risk and reward
The biotech sector suffered in a post-pandemic world, and OXB was no exception. Its share price is still down nearly 40% over five years. But this year has been more promising with the shares rising from 420p in January to over 600p today.
Recent results show a positive trajectory. In the first half of FY25, revenue surged 44% to £73.2m, and the group’s order book skyrocketed 166% to £149m.
It’s still a loss-making company, which brings risks for investors considering the £728m valuation rests on the firm’s future potential. However, pre-tax losses have narrowed to £26m from £35.7m, so the direction of travel looks good.
Expanding production capacity is a major priority for OXB. Those ambitions were given a huge boost from a successful £60m fundraising earlier this year. In October, the company used some of those funds to acquire a commercial-scale, FDA-approved viral vector manufacturing site in North Carolina, which is expected to be fully operational in early 2026.
The investment opportunity in OXB shares needs to be weighed against a price-to-sales (P/S) ratio above 4 and a price-to-book (P/B) ratio above 22. While growth stocks in the biotech sector often have higher valuation multiples, I think these figures leave little room for error. Any clinical trial setbacks or the loss of a key customer could send the share price tumbling.
My view
ChatGPT’s growth stock champion was an interesting choice, but it wouldn’t be my number one pick. In any event, I already invest in AstraZeneca, so I won’t be buying OXB shares today. Diversification matters and I don’t want too much biotech exposure in my portfolio. But I’ll keep a close eye on this company to see if it can realise its potential.
