NEW YORK (TheStreet) – With year-to-date gains of only 6.7%, Baxter International (BAX) hasn't stunned investors with exceptional gains. Not compared to, say, Allergan (AGN) , whose shareholders are 50% wealthier in 2014. Baxter still trails the health care sector's 11% gain, according to Morningstar.
Still, at around $74 per share, and a price-to-earnings ratio four points under the industry average of 24, according to Yahoo! Finance, there's still room for Baxter to close that gap.
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First, the company is growing revenue at a 16% rate. That's five points higher than the industry average. Still Wall Street applies a higher valuation to rival Becton, Dickinson and Company (BDX) , which trades at a P/E of 24. This is even though Becton is growing at 5%.
Next, consider Grifols (GRFS) , which carries a P/E (52) that is more than twice that of Baxter. On a price-to-sales basis, Grifols enjoys of multiple of seven, more than twice the industry average P/E of three. Baxter, meanwhile, trading at a P/S of 2.44. This is even though both Baxter and Grifols are growing revenue at the same rate.
Relative to Baxter's peers, Wall Street doesn't believe Baxter can generate the growth to justify a higher stock price. One of the bearish arguments for Baxter is the fear that rival Biogen (BIIB) , which has a strong hemophilia treatment, is well positioned to attack Baxter's market share.