Due to biotech’s improved bottom lines, analysts’ expectations on earnings have also increased. Bulls argue that the earnings growth outlook tops every other sector. Last month, Gilead reported a five-fold increase in second-quarter profits year-over-year.
The Nasdaq Biotech Index is trading about 32% cheaper relative to analysts’ next-12-month profit forecasts, compared to the last time it hit record highs. IBB’s stock portfolio shows a price-to-prospective earnings of 25.9 and a price-to-book of 6.2. In comparison, the S&P 500 has a 17.0 P/E ratio and a 2.3 P/B ratio.
Overall, biotechs are “definitely not cheap but I wouldn’t say they’re crazily expensive either, when you look at the multiples on these companies relative to earnings growth rates,” Bakri said.
iShares Nasdaq Biotechnology ETF
For more information on the biotech sector, visit our biotechnology category.
Max Chen contributed to this article.