Protagonist Therapeutics (PTGX) is in focus after partner Takeda secured U.S. FDA approval for MIMRYLO, a hepcidin mimetic peptide for polycythemia vera, triggering US$275 million in milestone payments to the company.

The FDA approval news for MIMRYLO comes after a strong run for Protagonist Therapeutics, even though the stock has cooled in the very short term, with the share price down 3.46% over the last day and 6.47% over the past week. At a latest share price of US$144.33, the stock still shows firm momentum, with a 30 day share price return of 8.52% and a 90 day share price return of 44.97%, while total shareholder return over the past year is 144.42% and the three year total shareholder return is around 7x. This points to a story that has been building over several years rather than only on this latest milestone.

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After such a strong move and with a US$275 million milestone on the table, Protagonist Therapeutics now sits at a very different scale. Does the current valuation still leave enough upside to justify the risks you are taking?

Preferred P/E of 112.6x: Is it justified for Protagonist Therapeutics?

On the current numbers, Protagonist Therapeutics trades on a P/E of 112.6x, which is high relative to both biotech peers and its own estimated fair multiple.

The P/E ratio compares the share price to earnings per share and is a quick way to see how much investors are paying for current profits. For a company like Protagonist Therapeutics in the pharmaceuticals and biotech space, a high P/E often reflects strong expectations around the pipeline, future earnings growth and monetisation of partnered assets.

Here, the market is paying a P/E of 112.6x for Protagonist Therapeutics, while the US Biotechs industry average sits at 17.6x and the peer group average at 84.1x. The estimated fair P/E from the SWS fair ratio model is 31.5x, which is far lower than the current multiple. That gap suggests investors are pricing in a much richer earnings profile than the fair ratio implies, and the valuation could move closer to that lower level if expectations cool.

To understand how the SWS fair ratio is calculated and what it implies in more detail, take a look at the Explore the SWS fair ratio for Protagonist Therapeutics.

Result: Price-to-earnings of 112.6x (OVERVALUED)

However, investors in Protagonist Therapeutics still face execution risk around Icotyde and the wider pipeline, as well as the possibility that sentiment cools on such a rich P/E.

Another view of Protagonist Therapeutics using the SWS DCF model

While the P/E of Protagonist Therapeutics looks rich, the SWS DCF model points in a very different direction. On this approach, the estimated future cash flow value sits at US$558.25 per share versus the current US$144.33. This implies the stock trades about 74.1% below that fair value estimate. Which signal do you give more weight to?

For a closer look at how this cash flow view is built, including the assumptions that drive it, review 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 Protagonist 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 44 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

Given the mix of excitement and caution around Protagonist Therapeutics right now, it makes sense to move quickly and check the numbers yourself so your view is grounded in data rather than headlines. To see what optimism is already reflected in the stock and how those positives stack up, review the 3 key rewards.

Looking for more investment ideas beyond Protagonist Therapeutics?

If Protagonist Therapeutics has your attention, it is worth broadening your watchlist now so you do not miss other opportunities that fit your style.

• Target stability first, then growth, by reviewing companies in the 74 resilient stocks with low risk scores that may suit a more cautious approach.
• Spot potential bargains quickly by scanning the 44 high quality undervalued stocks where quality and pricing are assessed side by side.
• Focus on financial strength by checking the list of solid balance sheet and fundamentals (51 results) which highlights businesses with sturdier fundamentals.

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.