What Is Going on With RXDX Shares?

Prometheus Biosciences Inc.’s stock price has surged to a price of $192.89 today. With their 69.2% increase, RXDX shares outpaced both the S&P 500 and Dow Industrial composite indices by -0.0%, closing in on their 52 week high of $193.79 Over the last 12 months, Prometheus Biosciences is up 263.4%, and has outperformed the S&P 500 by 269.0%. Now, the small-cap Health Care company is 20.83% above its average target price of $159.64 and has an average analyst rating of buy.

Prometheus Biosciences does not publish either its forward or trailing price to earnings (P/E) ratio because their values are negative -- meaning that each share of stock represents a net earnings loss. Investors are sometimes willing to invest in a stock with negative earnings if they believe the company will perform well in the future, especially if the company has an innovative approach to its business. Continued upwards price movements depend on whether future earnings will meet expectations, and how long investors are willing to wait around for this to occur.

Another metric for valuing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present value of the company if it were liquidated today (i.e. selling all assets and paying off all debts). Prometheus Biosciences's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 13.0, so the company's assets may be overvalued compared to the average P/B ratio of the Health Care sector, which stands at 4.16.

RXDX's average free cash flow in recent years is $-59,824,000.00. This represents the sum of inflows and outflows of cash from all sources, including capital expenses. This is the pool of liquidity from which the company can reinvest in its business or pay out dividends to its investors. It comes as no surprise then that no dividends have been issued in the last twelve months. While not ideal, negative free cash flows are common -- especially in capital intensive businesses or after a period of heavy re-investment.

Since it has a a negative P/E ratio, an elevated P/B ratio, irregular and negative cash flows, and negative and irregular operating margins, Prometheus Biosciences is probably overvalued at current prices. Make sure to complement this brief quantitative review with a qualitative analysis of your own!

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.