Has Summit Therapeutics Run Too Far After Its Huge Multi Year Share Price Surge?

• If you are wondering whether Summit Therapeutics is still worth a closer look after its big run, or if you would just be buying into yesterday's hype, this article will walk you through what the current price really implies.
• Summit has cooled off recently, with the stock up 1.4% over the last week and 1.8% over the past month. However, that sits on top of a 469.6% gain over three years and 235.6% over five years, even though the 1 year return is slightly negative at 0.8%.
• Those moves have come alongside a steady drumbeat of pipeline and partnership headlines that have kept Summit on the radar of growth focused biotech investors. Together, these developments have helped shift how the market is pricing in future drug approvals and execution risk.
• Right now, Summit scores just 2 out of 6 on our valuation checks, which suggests there are both red flags and possible pockets of value. Next, we will dig into different valuation approaches to see what the numbers say, before finishing with a more intuitive way to judge whether the stock really fits your strategy.

Summit Therapeutics scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Summit Therapeutics Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a company is worth by projecting its future cash flows and then discounting those amounts back to today in dollar terms. For Summit Therapeutics, the model used is a 2 Stage Free Cash Flow to Equity approach, which starts from the current loss-making position and then assumes a period of rapid growth before stabilising.

Summit’s last twelve month free cash flow is about $270.2 million in the red, but analyst and extrapolated forecasts in the model point to a sharp swing into positive territory over the coming decade. By 2029, free cash flow is projected to reach roughly $1.2 billion, and by 2035, the extended projections rise to around $7.5 billion, all in dollars. These figures blend analyst estimates for the nearer years with Simply Wall St’s longer term extrapolations.

When all those future cash flows are discounted back, the model arrives at an intrinsic value of about $157.02 per share. Compared with the current share price, this implies the stock is around 88.1% undervalued, which in the context of this model suggests the market may be deeply discounting Summit’s long term cash generation potential.

Result: UNDERVALUED (model-based)

Our Discounted Cash Flow (DCF) analysis suggests Summit Therapeutics is undervalued by 88.1%. Track this in your watchlist or portfolio, or discover 903 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Summit Therapeutics.

Approach 2: Summit Therapeutics Price vs Book

For profitable and asset heavy businesses, price to book is often a useful valuation yardstick because it compares what investors are paying in the market with the net assets the company has built up on its balance sheet. In general, higher growth expectations and lower perceived risk justify a richer price to book multiple, while slower growth or higher execution risk usually warrant a discount.

Summit currently trades on a price to book ratio of about 74.7x. That is far above both the broader Biotechs industry average of roughly 2.8x and the peer group average of around 11.4x, indicating that investors are already paying a substantial premium to the sector and to similar companies.

Simply Wall St’s Fair Ratio is designed to refine this comparison by estimating the price to book multiple that would be appropriate for Summit given its specific growth profile, profitability outlook, risk factors, industry positioning and market cap. Because it blends these company level drivers, the Fair Ratio is generally more informative than a simple peer or industry comparison. In Summit’s case, the Fair Ratio sits well below the current 74.7x multiple, which points to the shares being priced considerably above what those fundamentals would normally support.

Result: OVERVALUED

PB ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1450 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Summit Therapeutics Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple framework that lets you attach a clear story to the numbers behind a company. A Narrative is your view of Summit Therapeutics future, where you spell out assumptions for revenue growth, margins and risk, then link those assumptions to a concrete financial forecast and a fair value estimate. On Simply Wall St, Narratives are an easy to use tool inside the Community page, where millions of investors build and share these story driven valuations. Once you have a Narrative, you can quickly see whether your fair value is above or below today’s share price, which can make it easier to decide whether Summit belongs on your buy, hold or sell list. Narratives also stay current because they update dynamically as new information arrives, such as trial results, partnership announcements or earnings releases. For example, one Summit Narrative might assume rapid adoption of its lead asset and assign a very high fair value, while another could be more cautious about approvals and reflect a much lower valuation.

Do you think there's more to the story for Summit Therapeutics? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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