Olema Pharmaceuticals (OLMA) is back in focus after announcing a collaboration with Bayer to test its KAT6 inhibitor OP-3136 alongside darolutamide in metastatic castration-resistant prostate cancer, along with new Phase 1 data for OP-3136.

Despite the fresh Bayer collaboration and encouraging OP-3136 Phase 1 readout, short term sentiment has cooled. The share price is down 25% over 30 days and 56% over 90 days, while the 1 year total shareholder return sits strongly positive, hinting that longer term holders have still seen substantial gains.

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So with Olema’s share price down sharply in recent months, yet still showing a very large 1 year total return and trading well below the average analyst price target, is this a fresh entry point or is the market already counting on future growth?

Preferred Price-to-Book of 1.9x: Is it justified?

On Simply Wall St’s metrics, Olema looks inexpensive on a P/B basis, with a 1.9x multiple compared with 3.7x for its peer group and 2.6x for the wider US biotech industry.

P/B compares the share price to the company’s net assets on the balance sheet. It is often used for pre revenue or loss making biotechs where earnings based ratios are less useful. For Olema, a lower P/B multiple relative to peers suggests the market is assigning a more conservative value to its asset base, despite the clinical pipeline and forecast revenue growth profile.

The discount is clear when set against both the immediate peer set and the broader US biotech industry. Olema’s 1.9x P/B sits well below the 3.7x peer average and the 2.6x sector average. If sentiment around the pipeline and revenue outlook changes, the multiple could move closer to peer levels, but there is no guarantee that will happen.

Result: Price-to-book of 1.9x (UNDERVALUED)

DCF estimate points to a wide gap

The SWS DCF model currently estimates Olema’s future cash flow value at $181.73 per share, compared with a last close of $10.69, implying a very large gap between price and modelled value. That difference reflects the model’s view of long term cash generation potential, discounted back to today using an appropriate rate for risk and time.

The DCF process projects cash flows over many years, then discounts them to a present value so that earlier cash flows count more than distant ones. For an early stage biotech like Olema, which is currently loss making with $0 revenue and a reported net loss of $185.151m, those projections are highly sensitive to assumptions about clinical success, commercialization timing, and eventual profitability.

In this context, the wide gap between the DCF output and the current $10.69 share price shows how differently a model and the market can view the same pipeline. Investors comparing the two need to decide how much confidence to place in long dated cash flow assumptions for a company that is still in the clinical stage and forecast to remain unprofitable over the next few years.

Result: DCF Fair value of $181.73 (UNDERVALUED)

However, the story can shift quickly if key trials disappoint or if continued losses of $185.151m strain Olema’s US$1.11b market cap and funding options.

Another angle on value

Olema trades at 1.9x P/B, well below both its 3.7x peer average and the 2.6x US biotech industry. That looks like a clear discount, but it also signals investor caution around a company with $0 revenue and ongoing losses. Is this gap a margin of safety or a warning sign?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Olema Pharmaceuticals for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 46 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Sentiment in this article may feel mixed, so do not wait too long to weigh the trade off yourself and review the 2 key rewards and 4 important warning signs

Looking for more investment ideas?

If Olema has caught your eye, do not stop there. Broaden your watchlist now so you are not relying on a single story for future decisions.

• Target potential mispricings by scanning for companies that look cheap on quality metrics using the 46 high quality undervalued stocks.
• Build a steadier income stream by focusing on companies offering higher yields and resilient payouts through the 11 dividend fortresses.
• Strengthen your core holdings by filtering for companies with durable balance sheets and solid fundamentals via the solid balance sheet and fundamentals stocks screener (47 results).

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.