The stock market involves far higher levels of risk than backing the unbeatable Black Caviar did throughout a racing career that offered a punter term deposit thrashing returns and a similar level of safety to cash in the bank.
Alas with the four-legged ATM now retired investors will have to turn to the riskier returns of the stock market to find the ASX's answer to Black Caviar. Fortunately one business perhaps has the characteristics of the champion mare with even more staying power.
Cancer treatment business Sirtex Medical Limited (ASX: SRX) has been giving investors an exciting ride recently. Its shares have quadrupled in value in less than three years on the back of 40 consecutive quarters of sales growth for its radiation-therapy used to treat liver cancer.
The company's ambition is to launch the business into new growth levels and it's undertaking a clinical trial known as its SIRFLOX study aimed at proving the effectiveness of its therapy in treating a wider range of cancers at different stages in their development. Initial results will be released in March 2015, with the company expecting the trial results to be positive.
Given Sirtex's share price surge recently it also appears the market is expecting the results to be positive. Indeed the efficacy of the SIR-Spheres microspheres in treating cancer has never been in too much doubt, but the company's main challenge has been persuading the global community of oncologists as to its worth as a treatment beyond traditional radiation therapy and chemotherapy.
This is why Sirtex has committed an extra $10 million to the marketing and promotion of the SIRFLOX trial as its success will mean little unless translated into a pick-up in sales.
Sirtex is far from unbeatable and is not the only operator in its market with main rival, TheraSphere, looking to win market share in the key U.S. market. There's also the risk that the trial results disappoint or fail to translate into significant sales growth. Given that Sirtex is now trading on more than 40x 2015's estimated earnings any disappointment and the stock is likely to see a big pullback so buyers should be cognisant of the risks.
However, Sirtex does appear to have several future catalysts to support further growth including potentially positive results of several other trials and the fact that its product is only beginning to tap into its total addressable market. For example giant healthcare markets like Japan, China and Canada remain almost untouched by the group's geographical expansion.
Not so long ago fund manager (and substantial shareholder) Hunter Hall declared Sirtex to have potential to be a $100 stock based on future revenues of $830 million and EBITA of $565 million if the business is able to penetrate just 10% of its addressable market.
In FY 2014 the company posted EBITDA of $30.83 million on $129.4 million of revenues so it still has a marathon ride and numerous obstacles ahead of it yet. Currently selling for nearly $26 investors might be best off keeping this one on the watchlist for now, but any sign of substantial price weakness looks a buying opportunity in my opinion.
