Biotechnology company Revolution Medicines is taking Wall Street by surprise today, falling to $50.0 and marking a -13.6% change compared to the S&P 500, which moved 0.0%. RVMD is -30.0% below its average analyst target price of $71.43, which implies there is more upside for the stock.
As such, the average analyst rates it at buy. Over the last year, Revolution Medicines shares have outstripped the S&P 500 by 106.7%, with a price change of 138.8%.
Revolution Medicines, Inc., a clinical-stage precision oncology company, develops novel targeted therapies for RAS-addicted cancers. The company is part of the healthcare sector. Healthcare companies work in incredibly complex markets, and their valuations can change in an instant based on a denied drug approval, a research and development breakthrough at a competitor, or a new government regulation. In the longer term, healthcare companies are affected by factors as varied as demographics and epidemiology. Investors who want to understand the healthcare market should be prepared for deep dives into a wide range of topics.
Revolution Medicines does not publish either its forward or trailing P/E ratios because their values are negative -- meaning that each share of stock represents a net earnings loss. But we can calculate these P/E ratios anyways using the stocks forward and trailing (EPS) values of $-4.05 and $-3.66. We can see that RVMD has a forward P/E ratio of -12.3 and a trailing P/E ratio of -13.7. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the third quarter of 2024, the health care sector has an average P/E ratio of 26.07, and the average for the S&P 500 is 29.3.
To deepen our understanding of the company's finances, we should study the effect of its depreciation and capital expenditures on the company's bottom line. We can see the effect of these additional factors in Revolution Medicines's free cash flow, which was $-358301000 as of its most recent annual report. Free cash flow represents the amount of money available for reinvestment in the business or for payments to equity investors in the form of a dividend. In RVMD's case the cash flow outlook is weak. It's average cash flow over the last 4 years has been $-150452333.3 and they've been growing at an average rate of -316.5%.
Another valuation metric for analyzing 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 liquidation value of the company, as if it sold all of its assets and paid off all debts). Revolution medicines's P/B ratio is 5.36 -- in other words, the market value of the company exceeds its book value by a factor of more than 5, so the company's assets may be overvalued compared to the average P/B ratio of the Health Care sector, which stands at 3.53 as of the third quarter of 2024.
Since it has a negative P/E ratio., a higher than Average P/B Ratio, and negative cash flows with a downwards trend, Revolution Medicines is likely overvalued at today's prices. The company has poor growth indicators because of no PEG ratio and with a negative growth trend. We hope you enjoyed this overview of RVMD's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.
