Bio-Reference, in reality, is boring, making it worthy of an investment. It's certainly no
Based in Elmwood Park, N.J., Bio-Reference operates an independent clinical laboratory that specializes in genomics, oncology, correctional health and complementary medicine. The company draws revenue from conducting tests for physicians' offices and handling clinical testing. It avoids much of the uncertainty in biotechnology by simply extracting a fee for testing services without being tied to the success or failure of those tests.
At its essence, Bio-Reference is really just a service provider, despite being lumped into the volatile health-care sector. The company's relative safety can be seen in its low beta value of only 0.86, indicating the stock doesn't offer much non-diversifiable risk, making it a solid holding for most portfolios.
Bio-Reference has gained 86% over the past year versus 25% for the
S&P 500 Index
. Dendreon, one of the hottest biotech stocks, has risen 99%. But it also has sky-high volatility.
Bio-Reference has tamed its borrowing during the past three years, making it even safer. The debt-to-equity ratio has fallen from 0.42 in the year ending October 2007 to just 0.2 for the year ending October 2009. This judicious use of debt financing has led to a rock-solid balance sheet that sports a current ratio of 2.2 as of January 2010.
While the lack of leverage may have hampered returns, a return on equity of 19.3% for fiscal 2009 beat the industry average of 12.6%. In sum, Bio-Reference is more stable and more profitable than others in the industry.
Value investors, however, may be turned off. A PEG ratio (a measure of price-to-growth prospects) of 1.4 and a price-to-free-cash-flow ratio of 40.5 are high, and a price-to-earnings ratio of 20 is expensive compared with the industry average of 15.
Bio-Reference is clearly a growth stock. Analysts predict earnings will grow 20% this year and 14% in 2011, and revenue will rise 17% and 19%.
Bio-Reference carries a grade of A from
ratings model with a "buy" recommendation. The stock is in the top 20 in terms of overall score.
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-- Reported by David MacDougall in Boston.
Prior to joining TheStreet Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level III CFA candidate.