Osiris Therapeutics (NASDAQ:OSIR) stem cells aren’t the big source of buzz they were just a few years ago. We have moved on to ebola and other things, but there is still a growing market in the world of stem cells. OSIR is a Zacks Rank #2 (Buy) and is seeing both revenue and earnings growth in what was once a controversial sector.

A Bio Tech With Revenue Growth And Earnings?

In any market condition a bio tech stock that is seeing revenue growth and is looking at full year profitability is something that investors want to see. Even in times of trouble a bio tech with those credentials will find buyers to bid it higher.

Company Description

Osiris Therapeutics is a stem cell company that focuses on wound care, orthopedic, and sports medicine markets. The company has strategic partnership with Stryker Corporation to develop viable bone matrix tissue form. Osiris Therapeutics, Inc. was founded in 1992 and is headquartered in Columbia, Maryland.

Earnings History

The earnings history for OSIR isn’t the model of consistency that we want to see. It is a model of consistency though, as it has alternated beating and missing over each of its last six quarters, so consistently inconsistent. What I do like to see is the revenue growth, and there are no caveats in that statement.

Revenue has increase from $7M for the September 2013 quarter to $8M, then $10M followed up by $13M and most recently $17M for the September 2014 quarter. Consistent quarter over quarter revenue growth is just what we want to see in an aggressive growth stock.

Estimates

2014 was an up and down year for OSIR earnings estimates. Analysts moved numbers all over the place, but it’s hard to blame them given the history of beating and missing and then beating and missing again. The 2014 Zacks Consensus Estimate was calling for a loss of $0.26 in April, but the next month, the number had moved to a gain of $0.09 for the year. By August, the number moved back to a loss of $0.12 but by the end of the year the loss was cut in half to $0.06.

At this stage of the year, investors aren’t worried so much about the 2014 earnings year as they are the 2015. The 2015 Zacks Consensus Estimate has seen a little more consistency over the course of the year, and maybe most importantly, it has been a positive number. It moved from being a loss of two cents to a gain of three cents in July, kicked lower to a gain of a penny in August by then rocketed higher to $0.12 in November. The number currently stands at $0.12.

Valuation

Given the poor earnings history, the trailing PE is going to scare some, but we need to focus on the earnings growth. That said, the trailing PE of 1669x is just about 1647x more than the 22x industry average. The forward PE of 138x is also significantly higher than 20x industry average, but as noted above, we recently saw the 2015 estimate move from a penny to $0.12. The price to book of 7x is higher than the 4x industry average while the price to sales multiple of 12x is also higher than industry average of 4x.

Bottom line is we are paying up for something, but I haven’t told you what that is just yet. That something is revenue growth, and OSIR, after showing growth good growth in 2014 is slated to see revenues increase by 40% this year. Earnings growth is going to be even larger, with OSIR slated to post 320% growth compared to 14% as the industry average.

Recent Research

Brean Capital started coverage of the stock at the end of 2014 and gave it a buy rating and a price target of $19. They believe that the company successfully transitioned from a wound care stem cell R&D company to a wound care co on a commercial stage. The solid growth from Grafix is likely to drive revenue and earnings in 2015 and Brean believe this should be a profitable year.

This new coverage follows a late December announcement that OSIR has entered into a partnership with Stryker (SYK) for commercialization and development of their bone matrix tissue form. The market was pleased by this news and bid the stock higher by more than 5% the day of this announcement.

Chart

Zacks has developed a chart that helps investors see how earnings estimates have impacted the price of the stock over the last several years. We call this chart the price and consensus chart, and each color coded lines represents analyst estimates over a designated year. As estimates increase, the stock tends to follow. The Zacks Rank is impacted by earnings estimate increases, beats and incorporates the idea of analyst agreement and magnitude. As a Zacks Rank #2 (Buy) we see that estimates are moving higher.

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