Ascendis Pharma (NasdaqGS:ASND) is in focus after receiving FDA accelerated approval for YUVIWEL, a once weekly treatment for children with achondroplasia, and preparing a U.S. launch supported by dedicated patient assistance programs.

The FDA accelerated approval of YUVIWEL and follow up investor events, including a recent conference appearance and a call dedicated to the approval, come after a strong run, with a 30 day share price return of 8% and a 1 year total shareholder return of 73.63%. This suggests momentum has been building even if the latest one week move has been softer.

If YUVIWEL has you thinking about where else growth stories may emerge in healthcare, it could be worth reviewing our screener of 32 healthcare AI stocks as a starting list of potential ideas.

With Ascendis shares up 74% over the past year and trading at US$239.92, along with an intrinsic value estimate that implies a sizeable discount, the key question is whether there is still an opportunity here or if the market already reflects future growth.

Preferred Price to Sales Multiple of 17.6x: Is it justified?

Ascendis Pharma is trading on a P/S of 17.6x, which sits close to peers on average but above both the estimated fair level and the wider biotech group.

P/S compares the company’s market value to its revenue and is often used for businesses that are not yet profitable, as is the case here. For Ascendis, this multiple is described as good value against a peer average P/S of 17.8x, yet it is also flagged as expensive relative to the US Biotechs industry average of 12x.

The fair P/S ratio implied by the SWS fair ratio work is 14.5x. The current 17.6x level therefore sits meaningfully higher and could represent a premium that the market may not always be willing to maintain. Industry level comparisons point to a richer valuation than many biotech names, while the fair ratio suggests a lower multiple is the level the market could move towards if expectations ease.

Result: Price to sales ratio of 17.6x (OVERVALUED)

However, you also need to weigh potential approval or launch setbacks for YUVIWEL, along with ongoing net losses of €228.034m, which could challenge the current premium valuation.

Another view: DCF suggests a very different story

While the current 17.6x P/S hints at a rich price tag, our DCF model points the other way with an estimated future cash flow value of $812.61 per share versus the current $239.92. That indicates Ascendis may be materially undervalued. This raises the question of which signal is more useful to rely on: growth multiples or cash flows?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Ascendis Pharma 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

All of this paints a mixed picture, so it makes sense to look at the numbers yourself and decide how comfortable you are with the trade off between potential and risk. To help frame that view, take a look at the 3 key rewards and 1 important warning sign.

Looking for more investment ideas?

If Ascendis has sharpened your focus on quality, do not stop here, use the Simply Wall Street Screener to uncover other stocks that could fit your goals.

• Prioritise resilience by reviewing companies in our 63 resilient stocks with low risk scores and see which names score well on overall risk.
• Hunt for potential value by scanning the 46 high quality undervalued stocks, a list of stocks that pair solid fundamentals with lower implied pricing.
• Strengthen your core holdings by checking the solid balance sheet and fundamentals stocks screener (41 results), highlighting companies with balance sheets that may support their long term plans.

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.