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Is Hikma Pharmaceuticals the hottest growth stock in the FTSE 250?

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Shareholders in generic drug specialist Hikma Pharmaceuticals (LSE: HIK) have endured a rollercoaster ride over the last two years. Back in August 2016, Hikma’s share price was over 2,300p and investors, myself included, were excited about the growth story. However, things didn’t exactly go to plan for the group, and after a series of profit warnings caused by drug delays, the stock fell as low as 850p in February this year.

Yet sentiment towards stocks can change quickly. In the last five months, Hikma’s share price has shot up again extremely quickly. Since the start of March, the stock is up over 120% and is now changing hands for 1,925p. So what has caused Hikma to rebound at such a rapid pace… and could there be more gains to come?

Broker upgrades

Hikma’s upward momentum began when the group released final results for FY2017 back on 14 March. Although the numbers weren’t that flash, with core basic earnings per share falling 8% in constant currency, several brokers updated their price targets for the stock and this boosted Hikma’s share price up above 1,100p.

Since then, the group’s outlook has continued to improve and the shares have kept climbing higher. A trading update released in mid-May was upbeat, and half-year results released last week were much improved. Group revenue was up 10%, core basic earnings per share lifted 38%, and the group raising its guidance for its injectables and generics businesses. As a result, brokers have continued to upgrade their earnings estimates for the company and lift their price targets. Over the last month, the consensus FY2018 earnings per share figure has risen by $0.13 to $1.06, which is quite a significant upgrade. So are there more gains to come, or is it too late to buy?

I do like the long-term story here. Hikma’s exposure to fast-growing markets and its focus on affordable drugs make it well positioned to capitalise on the world’s ageing population and the demand for healthcare. The forward P/E of 23.2 doesn’t look unreasonable, in my view. Having said that, the stock has had a phenomenal run since March, so I’d be inclined to wait for a pullback before buying.

Another growth star

Another FTSE 250 star that has performed exceptionally well in 2018 is IT specialist Softcat (LSE: SCT). Its shares are up over 60% this year, so can it keep delivering gains to investors?

I last covered Softcat back in May, shortly after Neil Woodford sold his holding in the company. Back then, I said that I didn’t think it was time to sell up just yet as the company appeared to still have considerable momentum. That call looks good now, as the shares have risen another 18% since and, in July, the group advised that full-year 2018 adjusted operating profit will be “materially ahead of prior expectations.”

After a 60% year-to-date share price rise, Softcat shares certainly don’t offer the value they have in the past, when the stock’s P/E ratio has often been in the low 20s. With analysts forecasting earnings per share of 27.4p this year, today the forward P/E is a lofty 30.6. Yet the growth story here still looks intact. As a result, I continue to rate the stock as a hold.

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Hikma Pharmaceuticals. 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.