Pharmaceutical company Summit Therapeutics is standing out today, surging to $20.45 and marking a 10.6% change. In comparison the S&P 500 moved only 1.0%. SMMT is -40.54% below its average analyst target price of $34.4, which implies there is more upside for the stock.
As such, the average analyst rates it at buy. Over the last year, Summit Therapeutics shares have outperformed the S&P 500 by 283.5%, with a price change of 297.6%.
Summit Therapeutics Inc., a biopharmaceutical company, focuses on discovery, development, and commercialization of patient, physician, caregiver, and societal friendly medicinal therapies in the United States, and the United Kingdom. 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.
Summit Therapeutics 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 $-0.38 and $-0.31. We can see that SMMT has a forward P/E ratio of -53.8 and a trailing P/E ratio of -66.0.
The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the third quarter of 2024, the health care sector has an average P/E ratio of 26.07, and the average for the S&P 500 is 29.3.
Another key to assessing a company's health is to look at its free cash flow, which is calculated on the basis of its total cash flow from operating activities minus its capital expenditures. Capital expenditures are the costs of maintaining fixed assets such as land, buildings, and equipment. From Summit Therapeutics's last four annual reports, we are able to obtain the following rundown of its free cash flow:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | -76,760 | 128 | -76,888 | -82.17 |
| 2022 | -41,582 | 624 | -42,206 | 42.1 |
| 2021 | -72,587 | 306 | -72,893 | -50.2 |
| 2020 | -48,111 | 421 | -48,532 | -37.63 |
| 2019 | -35,106 | 157 | -35,263 | -59.06 |
| 2018 | -21,501 | 668 | -22,169 |
- Average free cash flow: $-49658500.0
- Average free cash flown growth rate: -28.2 %
- Coefficient of variability (the lower the better): 0.0 %
If it weren't negative, the free cash flow would represent the amount of money available for reinvestment in the business, or for payments to equity investors in the form of a dividend. While a negative cash flow for one or two quarters is not a sign of financial troubles for SMMT, a long term trend of negative or highly erratic cash flow levels may indicate a struggling business or a mismanaged company.
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.
Summit Therapeutics's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 38, 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.
With a negative P/E ratio., a higher than Average P/B Ratio, and negative cash flows with a downwards trend, we can conclude that Summit Therapeutics is probably overvalued at current prices. The stock presents poor growth indicators because of its no published profit margins with a unknown rate of growth, and a negative PEG ratio.
