Can There Be More Upside for Axsome Therapeutics (AXSM) if It Is Overvalued?

By Naomi Wentworth • Monday, February 10 15:07 • Permanent Link

It's been a strong day for Axsome Therapeutics. Its shares are now trading at $127.02, marking a 20.1% change since the previous market close. An analyst favorite, the Pharmaceutical company has a rating of buy. But could the market and the analyst community be overvaluing this stock?

Axsome Therapeutics has a P/E ratio of -19.3 based on its 12 month trailing earnings per share of $-6.58. Considering its future earnings estimates of $-2.16 per share, the stock's forward P/E ratio is -58.8. In comparison, the average P/E ratio of the Health Care sector is 26.07 and the average P/E ratio of the S&P 500 is 29.3.

We can also compare the ratio of Axsome 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. AXSM has a P/B ratio of 66.23, 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. Axsome Therapeutics's quick ratio is 2.301. 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 Axsome Therapeutics is its levered free cash flow, which is negative at $-145662000. 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 Axsome 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 Axsome 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.