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Regardless of how satisfied I’m of the funding case for a selected development inventory, I’d by no means put 100% of my money in only one share. Diversification is a vital pillar of my investing technique, because it protects my portfolio towards the potential for a devastating company-specific occasion.
However what if I had been restricted to purchasing a single UK development inventory? With so many decisions accessible for traders, it’s arduous to decide on one firm above all others. I used to be curious to see if ChatGPT had a spectacular suggestion I might need missed.
Genetics for development
The AI chatbot began with boilerplate wording cautioning towards going all-in on one development inventory, describing it as “extraordinarily dangerous“. I agree. But it surely performed together with my loopy concept, deciding on Oxford Biomedica (LSE:OXB) because the stand-out share to contemplate.
I have to admit, I’d solely come throughout this FTSE 250 gene and cell remedy enterprise earlier than in passing throughout the pandemic. Again in 2020, the agency signed a outstanding manufacturing settlement with AstraZeneca to supply Covid-19 vaccines. Naturally, ChatGPT’s reply inspired me to look deeper.
The corporate, which now trades as OXB, began life as a spin-out from the College of Oxford in 1995. In the present day, it’s a pure contract improvement and manufacturing organisation (CDMO).
This implies OXB’s boffins deal with complicated lab work and large-scale manufacturing so its prospects don’t should. The agency serves main pharma firms, similar to Novartis and Bristol Myers Squibb, by manufacturing viral vectors and gene remedy parts.
Threat and reward
The biotech sector suffered in a post-pandemic world, and OXB was no exception. Its share worth continues to be down practically 40% over 5 years. However this 12 months has been extra promising with the shares rising from 420p in January to over 600p right now.
Current outcomes present a optimistic trajectory. Within the first half of FY25, income surged 44% to £73.2m, and the group’s order guide skyrocketed 166% to £149m.
It’s nonetheless a loss-making firm, which brings dangers for traders contemplating the £728m valuation rests on the agency’s future potential. Nevertheless, pre-tax losses have narrowed to £26m from £35.7m, so the path of journey appears good.
Increasing manufacturing capability is a significant precedence for OXB. These ambitions got an enormous enhance from a profitable £60m fundraising earlier this 12 months. In October, the corporate used a few of these funds to amass a commercial-scale, FDA-approved viral vector manufacturing website in North Carolina, which is anticipated to be absolutely operational in early 2026.
The funding alternative in OXB shares must be weighed towards a price-to-sales (P/S) ratio above 4 and a price-to-book (P/B) ratio above 22. Whereas development shares within the biotech sector usually have larger valuation multiples, I feel these figures go away little room for error. Any scientific trial setbacks or the lack of a key buyer might ship the share worth tumbling.
My view
ChatGPT’s development inventory champion was an fascinating selection, nevertheless it wouldn’t be my primary decide. In any occasion, I already put money into AstraZeneca, so I gained’t be shopping for OXB shares right now. Diversification issues and I don’t need an excessive amount of biotech publicity in my portfolio. However I’ll preserve an in depth eye on this firm to see if it will probably realise its potential.
