Krystal Biotech (KRYS): Strong Results Indicate a Good Buy (Q3 2024 Earnings)

Krystal Biotech, Inc. (NASDAQ: KRYS) has emerged as a standout player in the biotechnology sector, delivering exceptional financial performance and promising growth potential. This article examines why Krystal Biotech’s recent achievements and market position make it an attractive investment opportunity, despite certain risks inherent in the biotech industry.

1. Overview of Krystal Biotech

Krystal Biotech specializes in gene therapy solutions aimed at treating rare dermatological diseases. The company’s flagship product, Vyjuvek, is a cutting-edge gene therapy for dystrophic epidermolysis bullosa (DEB), a severe skin condition. By leveraging their proprietary redosable gene therapy platform, Krystal Biotech is positioned at the forefront of innovation in addressing unmet medical needs in dermatology and beyond.

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2. Krystal Financial Performance

Krystal Biotech showcased extraordinary growth in its financial performance for Q3 2024. The company reported quarterly revenue of $83.84 million, a staggering 879.91% increase compared to $8.56 million in Q3 2023. On a trailing twelve-month (TTM) basis, revenue soared to $241.52 million, reflecting an astounding 2722.8% growth from the previous year. These numbers underscore the company's robust commercialization of its flagship gene therapy product​.

However, the quarterly earnings per share (EPS) for Q3 2024 stood at $0.91, a 66.34% decline from $2.79 in Q3 2023. This decrease primarily stems from a one-time gain of $100 million from the sale of a priority review voucher during Q3 2023. On a TTM basis, EPS improved significantly to $1.77, compared to a negative -$1.13 in the previous period, demonstrating improved profitability and operational efficiencies​.

The company’s free cash flow per share (TTM) also showed remarkable improvement, increasing to $1.97 from a negative -$4.49 in the prior year. This turnaround highlights Krystal Biotech's operational strength and cash flow generation capabilities​. Furthermore, the company maintains a solid financial foundation with a current ratio of 7.97 and a negligible debt-to-equity ratio of 0.01, emphasizing its strong liquidity and prudent financial management​.

3. Stock Price Performance and Valuation

At a current price of $170.74 per share, Krystal Biotech's stock has experienced a 66% increase over the past year. This growth reflects investor confidence, driven by strong revenue expansion and optimism about the company’s product pipeline and future prospects​.

Despite the significant appreciation, the stock's valuation remains reasonable given its rapid growth trajectory. Krystal Biotech’s price-to-sales (P/S) ratio stands at 20.11, and its trailing twelve-month price-to-earnings (P/E) ratio is 96.29, indicating that investors are pricing in high growth expectations. The forward P/E ratio is notably lower at 36.3, suggesting a significant reduction as earnings grow over the next year. The price-to-free-cash-flow (P/FCF) ratio is 84.58, reflecting Krystal's reinvestment in its growth initiatives​.

When compared to its biotech peers, these metrics suggest that while Krystal Biotech's stock may appear expensive at first glance, its rapid revenue growth, profitability improvements, and market leadership position justify its valuation. For growth-focused investors, the company offers a compelling opportunity to participate in the expanding gene therapy market.

 

4. Krystal Biotech Growth Potential

Krystal Biotech is poised for continued growth, underpinned by strong market trends and a promising product pipeline. The gene therapy market is projected to grow at a compound annual growth rate (CAGR) of over 20% in the coming years, creating a substantial opportunity for Krystal’s innovative treatments. The success of Vyjuvek in addressing DEB has paved the way for expanding applications of their gene therapy platform to other rare genetic conditions.

Additionally, the company’s robust R&D efforts are expected to drive the launch of new therapeutics, further diversifying its revenue streams. Analysts forecast a revenue increase to $471 million in 2025, representing a 59% year-over-year growth​

5. Risks to Consider

While Krystal Biotech offers significant upside potential, investors should be mindful of certain risks. Biotech companies are inherently exposed to regulatory hurdles, clinical trial uncertainties, and reliance on a limited product portfolio. Vyjuvek’s success is critical to Krystal’s current valuation, making it vulnerable to any setbacks in product adoption or competition from alternative therapies.

Despite these risks, Krystal’s strong financial health, innovative pipeline, and leadership in gene therapy mitigate these concerns. Its proven ability to commercialize groundbreaking products enhances confidence in its future performance.

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Conclusion

Krystal Biotech’s exceptional financial results, robust stock performance, and pioneering role in gene therapy make it a standout investment in the biotechnology sector. With strong growth potential supported by a solid pipeline and favorable market trends, the company is well-positioned to sustain its upward trajectory. While risks remain, the stock’s reasonable valuation and compelling growth story suggest it is a buy for investors with a medium- to long-term perspective.

Investors seeking exposure to innovative healthcare solutions should consider adding Krystal Biotech to their portfolio, as its strong fundamentals and strategic vision make it a promising player in the biotech landscape.