If there is such a thing as a poster child for volatility in the stock market, the biotech sector would likely take top honors.
Biotech stocks are unique. While stocks in other sectors are typically valued based on their past performance and future earnings potential, the majority of biotech stocks don’t have a cent in recurring revenue. Instead, biotech stocks are (typically) valued by Wall Street and investors based on the peak annual sales potential of their key pipeline products. This valuation allows some degree of emotion and opinion to come into play, which can lead to wild swings in biotech stock share prices to both the upside and the downside.
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