Krystal Biotech (KRYS) has just shifted its clinical development strategy in a way that is sure to catch the eye of investors weighing what to do next. The company reported encouraging results from its inhaled KB707 trial in non-small cell lung cancer, delivering a 36% objective response rate in a tough patient group. Following this data, Krystal secured a key FDA End of Phase 2 meeting, aimed at accelerating a registration path for this therapy. At the same time, they are pausing the intratumoral KB707 study and placing their full focus on the inhaled approach, a decision that indicates confidence in the data's potential to reshape their oncology efforts.

This pivot comes as Krystal’s share price reflects mixed sentiment. Over the past year, the stock has slid 25%, although a sharp 20% rally in the past 3 months suggests optimism is returning as clinical updates are released. Krystal’s multi-year performance still shows notable long-term growth, with returns topping 110% over three years and more than doubling over five. However, nearer-term momentum has been volatile, with rapid fluctuations as new data emerges. Recent annual growth in both revenue and net income indicates the underlying business is gaining momentum, even as the market adjusts its expectations for the future.

With the company doubling down on inhaled oncology and new trial milestones on the horizon, the current valuation of Krystal Biotech raises questions about whether the stock is undervalued or if investors have already factored in potential future gains.

Most Popular Narrative: 26.8% Undervalued

According to community narrative, Krystal Biotech is viewed as significantly undervalued, with the consensus narrative forecasting sizable upside potential from the current share price. This perspective is driven by ambitious projections for revenue and margin expansion, along with expectations for global market launches and fresh clinical data.

Significant international expansion is imminent. VYJUVEK launches in Europe and Japan are expected to substantially increase the addressable market and top-line revenues over the next 12 to 18 months. Broad regulatory labels and established reimbursement pathways in these markets are likely to support pricing power and faster adoption.

Looking for the main reason behind this large valuation gap? The analysts' calculations suggest breakthrough growth rates, premium margins, and strong profitability projections that could increase Krystal’s fair value—if actual results match these expectations. Interested in which financial levers are being used, and how much potential upside these assumptions create? A closer look at the underlying mathematics of this narrative may provide the answers.

Result: Fair Value of $205.5 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, risks remain, particularly if international launches face reimbursement delays or if heavy reliance on a single therapy results in increased revenue volatility.

Find out about the key risks to this Krystal Biotech narrative.

Another View: Is the Discount Really That Deep?

While analysts see upside using future growth forecasts, our DCF model offers a similar perspective of undervaluation based on the company’s projected cash flows instead of earnings multiples. Could both approaches be missing hidden risks or surprises?

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 Krystal Biotech 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 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 Krystal Biotech Narrative

If the narrative above doesn’t align with your own view, or you’d rather dig into the numbers and form your own perspective, you can easily craft your own in just a few minutes and do it your way.

A great starting point for your Krystal Biotech research is our analysis highlighting 4 key rewards and 1 important warning sign 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.