Viridian Therapeutics (VRDN) has taken a big step forward by submitting a Biologics License Application to the FDA for its lead therapy, veligrotug, which targets thyroid eye disease. The submission is supported by solid phase 3 trial results.

With Viridian's BLA submission highlighting clinical momentum, investors have taken notice. The stock’s 90-day share price return stands at an impressive 58.9%, while its one-year total shareholder return is up 42.9%. Solid revenue gains and recent clinical progress have helped build this positive momentum in the market.

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Yet with the stock's rapid climb and analysts still projecting notable upside from current levels, the question remains: Is Viridian undervalued at today’s price, or are investors already factoring in future growth?

Price-to-Sales Ratio of 38.8x: Is it justified?

Viridian Therapeutics is currently trading at a price-to-sales (P/S) ratio of 38.8x, a level that places it well above peers and industry benchmarks. With the last close at $28.77, the premium multiple has major implications for how the market views its future prospects.

The price-to-sales ratio compares a company’s stock price to its revenues, giving investors a crude measure of how much the market is willing to pay for each dollar earned. For biotech firms, where profits may be years away, P/S is commonly used since it avoids the complications of negative earnings.

In Viridian’s case, this lofty multiple suggests the market is pricing in aggressive revenue growth and successful execution on its pipeline. However, the current P/S ratio is not only more than double the peer average of 17.7x, it is also far above the US Biotechs industry average of 11x. Compared to our estimated fair price-to-sales ratio of just 0.1x, the market is extrapolating optimism to an exceptional degree. This level could prove difficult to maintain if growth or clinical milestones fall even slightly short.

Result: Price-to-Sales of 38.8x (OVERVALUED)

However, the story could change if clinical milestones are missed or if revenue growth slows, putting pressure on Viridian’s premium valuation.

Another View: The SWS DCF Model Sees Deep Value

While the market is pricing Viridian at a steep premium based on its price-to-sales ratio, our DCF model paints a dramatically different picture. According to the SWS DCF analysis, Viridian’s fair value estimate sits at $269.68 per share, suggesting the stock may be deeply undervalued despite its recent surge. This wide gap between what the model sees and what the market pays raises a big question for investors: Which vision of the future is more accurate?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Viridian Therapeutics 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 894 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Viridian Therapeutics Narrative

If you think there’s another angle, or you want to dig into the details yourself, it’s easy to craft your own take in just a few minutes. Do it your way

A great starting point for your Viridian Therapeutics research is our analysis highlighting 2 key rewards and 2 important warning signs that could impact your investment decision.

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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.