Let's get one thing clear. British-based pharmaceuticals group Vectura(LSE: VEC) isn't one of those speculative AIM stocks that hopes to one day find a miracle cure that will catapult its share price into the stratosphere. It's an industry-leading specialist in inhaled therapies for the treatment of respiratory diseases, with a market value in excess of £1bn. So why am I suggesting that its share price could double within two years?
Well for a start the Chippenham-based firm has an excellent track record when it comes to revenue and earnings growth. Since 2013, the group's revenues have quadrupled to £126.5m, with an underlying loss of 1.8p per share swinging to earnings of 7.43p per share over the same period.
Just recently the FTSE 250 group announced its full-year results for 2016 with matters complicated somewhat by the fact that its financial year-end was changed from March to December, meaning that the figures were for a shortened nine-month period. Nevertheless, Vectura put in a strong performance with the June 2016 merger with Skyepharma helping to completely transform the outlook for the business.
Group revenue for the period increased by a massive 75.7% to £126.5m, with recurring revenue accounting for 80.1% of the total. Significantly, revenues from seven recently-launched key inhaled products now represent 61.8% of the group's total revenues. With momentum now coming from these new products, strong growth in like-for-like recurring turnover is anticipated for 2017, and beyond.
Furthermore, Vectura has made excellent progress with the merger integration and organisation changes, and the group remains on track to deliver at least £10m in savings each year from 2018 onwards. From a valuation perspective, the shares currently trade on a P/E ratio of 21.7, falling to a more appealing 14.6 by the end of next year. If this was to revert to the three-year average of 28, the shares would be worth 297p, representing 94% upside from the current price of 153p.
Meanwhile, another mid-cap healthcare specialist that I believe offers plenty of upside is BTG(LSE: BTG). The FTSE 250 group has a portfolio of interventional medicine products to advance the treatment of cancer, severe emphysema, severe blood clots and varicose veins, and speciality pharmaceuticals that help patients overexposed to certain medications or toxins.
It has just completed its financial year ended 31 March, with last year's acquisition of Galil Medical helping to strengthen its portfolio, capabilities and leadership in interventional medicine, which is its fastest growing and highest revenue business. Full-year results won't be announced until May, but analysts are talking about a £113m rise in group revenues to £561m, with pre-tax profits climbing to £88m, a £30m improvement on the previous year.
BTG currently trades on an attractive valuation with the P/E rating falling to just 15.6 by FY2019, compared to a five-year average of 33, indicating significant upside potential.
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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended BTG. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.