Unpacking Summit Therapeutics (SMMT) Analyst Favorability

By Harris Dyer • Monday, July 15 15:10 • Permanent Link

Summit Therapeutics's price surge today seems to be confirming the bullish analyst outlook on the stock. Ending the day at $9.61, SMMT has posted 12.4% gains, pushing the valuation of the stock even higher. Might the stock be overvalued, despite its buy rating?

Summit Therapeutics has a P/E ratio of 25.3 based on its 12 month trailing earnings per share of $0.38. Considering its future earnings estimates of $-0.29 per share, the stock's forward P/E ratio is -33.1. In comparison, the average P/E ratio of the Health Care sector is 27.53 and the average P/E ratio of the S&P 500 is 27.65.

We can also compare the ratio of Summit Therapeutics's market price to its book value, which gives us the price to book, or P/B ratio. A company's book value refers to its present equity value -- or what is left over when we subtract its liabilities from its assets. SMMT has a P/B ratio of 152.54, with any figure close to or below one indicating a potentially undervalued company.

A comparison of the share price versus company earnings and book value should be balanced by an analysis of the company's ability to pay its liabilities. One popular metric is the Quick Ratio, or Acid Test, which is the company's current assets minus its inventory and prepaid expenses divided by its current liabilities. Summit Therapeutics's quick ratio is 6.725. Generally speaking, a quick ratio above 1 signifies that the company is able to meet its liabilities.

The last factor we will review in our value analysis of Summit Therapeutics is its levered free cash flow, which is negative at $-76888000. The levered free cash flow represents the sum of all of the company's inflows and outflows of capital in the last quarter. A negative value means that Summit Therapeutics has no cash left over to re-invest in the business or to pay equity investors in the form of a dividend.

At Market Inference, we will keep monitoring Summit Therapeutics to see if the analysts were right to recommend the stock despite its valuation issues. We recognize that numbers don't always tell the whole story, and that qualitative factors often set high performing investments apart from the rest.

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.