Why IDEAYA Biosciences stock is back on investors' radar

IDEAYA Biosciences (IDYA) has been added to several Russell Growth Benchmarks, a shift that can influence trading activity as index tracking funds and benchmark aware investors realign their portfolios.

The recent inclusion of IDEAYA Biosciences in several Russell Growth Benchmarks has coincided with strong momentum, with a 30 day share price return of 43.2% and a 1 year total shareholder return of 88.86% on a share price of US$40.51, alongside solid multi year gains.

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IDEAYA Biosciences is suddenly priced very differently compared with just a month ago, yet its business pipeline and index inclusion story have shifted in different ways. Does the current valuation lean more on fundamentals or on sentiment-driven demand?

Preferred Price-to-Sales of 17.1x: Is it justified?

At a last close of $40.51, IDEAYA Biosciences is being valued at a P/S ratio of 17.1x, while our DCF work suggests the share price sits well below an estimated future cash flow value of $179.41.

The P/S ratio compares the company’s market value with its revenue, which can be useful for a business like IDEAYA Biosciences that is currently loss making. Here, investors are effectively paying $17.10 for every $1 of revenue, a level that suggests the market is heavily focused on the revenue profile rather than current earnings.

Against that, IDEAYA Biosciences is unprofitable and is forecast to remain loss making over the next three years, and its net income losses have grown at an annual rate of 35.9% over the past five years. The current P/S of 17.1x is described as expensive both versus the estimated fair P/S ratio of 3.7x and relative to the broader US Biotechs industry average of 11.7x. However, it is also described as good value when compared with a peer average P/S of 32.3x.

Given how far the fair ratio sits below the current level, investors may want to see what that implied compression path could look like using the Explore the SWS fair ratio for IDEAYA Biosciences

Result: Price-to-Sales of 17.1x (OVERVALUED)

However, IDEAYA Biosciences still carries meaningful risk if loss making operations persist or if key oncology programs and collaborations fail to progress as expected.

Another view on IDEAYA Biosciences valuation

While the current P/S of 17.1x looks rich against a fair ratio of 3.7x and the broader US Biotechs industry at 11.7x, our DCF model points the other way, with a future cash flow value estimate of $179.41 suggesting the stock trades at a steep discount. Which signal should carry more weight for you right now?

For a closer look at how this cash flow view is built, including the assumptions behind it, start with the Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out IDEAYA Biosciences 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 45 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

With sentiment on IDEAYA Biosciences split between rich valuation signals and supportive cash flow work, investors may wish to move quickly, review the data and form their own stance using the 2 key rewards and 1 important warning sign

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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.