Buy, Sell, or Hold: Astex Pharmaceuticals, Inc. (ASTX)

Another reason to stay away from Astex — and other biotech companies — is that most of us know very little about biotechnology and related fields. Thus, it can be especially hard for us to discern which companies are best poised for success and what the risks are for each. It can make a lot of sense to just steer clear, or to invest in a bunch of biotech companies at once, via an ETF. The iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB), for example, can instantly have you invested in more than 100  companies, such as Cubist Pharmaceuticals Inc (NASDAQ:CBST) , which just reported 2012 revenue up 23% over 2011 and EPS up 304%. It has several products on the market and several more nearing the end of clinical trials.

Don’t like volatility? Perhaps steer clear of Astex: In 2008, it plunged 48%. In 2009, it soared 37%. In 2011, down 28%. In 2012, up 54%. In 2013, we’ll see!

Dilution is another concern, as Astex’s share count has surged from about 60 million a few years ago to around 100 million recently. The more shares there are, the smaller each one’s stake in the company. Dilution is generally not desirable, but it reflects a company generating more funds, which might be deployed to help the company grow faster.

Finally, Astex’s valuation isn’t screaming “Buy me!” Its P/E ratio was recently 89, far above its five-year average of 26 and its forward-looking P/E is 28.

Hold (off)
Given the reasons to buy or sell Astex, it’s not unreasonable to decide to just hold off on it. You might want to wait for it to be selling more drugs or for its income to start growing instead of shrinking. You might also wait for a pullback in its share price to get a bigger margin of safety.

The verdict
I’m holding off on Astex for now, but I’m intrigued. Everyone’s investment calculations are different, though. Do your own digging and see what you think. The company may perform spectacularly in the coming years, but remember that there are plenty of compelling stocks out there.

The article Buy, Sell, or Hold: Astex Pharmaceuticals originally appeared on Fool.com and is written by Selena Maranjian.

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns shares of Novartis. The Motley Fool recommends Cubist Pharmaceuticals.

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