Relay Therapeutics (RLAY) recently shared new Phase 2 data on zovegalisib in PIK3CA driven vascular anomalies, with a majority of evaluated patients meeting volumetric response criteria and reporting symptom relief at 12 weeks.

The recent zovegalisib data sits alongside a year of strong price momentum, with Relay Therapeutics’ 30 day share price return of 10.46% and year to date share price return of 71.76% contributing to a very large 1 year total shareholder return. However, the 5 year total shareholder return shows a decline of 59.82%.

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With Relay’s share price up strongly over the past year and fresh trial data in hand, the key question now is whether the recent rally still leaves room for upside or if the market is already pricing in future growth.

Preferred Price to Book of 4.8x: Is it justified?

Relay Therapeutics currently trades on a P/B of 4.8x, which sits above both its peer group average of 3.3x and the wider US Biotechs industry at 2.6x.

P/B compares the company’s market value to its book value. It is often used for unprofitable or early stage biotechs where earnings-based metrics are less useful. A higher P/B usually implies that investors are willing to pay more for each dollar of net assets, often because they expect the pipeline or technology to create future value that is not yet reflected in the balance sheet.

For Relay, the premium P/B multiple comes alongside a recent period of very strong 1 year total shareholder return and revenue that is reported at $10.676 million, but with a net loss of $272.705 million and a decline in return on equity of 42.47%. Given the company is currently unprofitable, has a value score of 0 and is not forecast to reach profitability within the next 3 years, the market appears to be assigning a higher valuation to its assets than sector averages. This points to elevated expectations being priced in at today’s $14.05 share price.

Compared with the US Biotechs industry P/B of 2.6x, Relay’s 4.8x multiple is materially higher and also sits above the 3.3x peer average described in the data provided. That gap suggests investors are treating Relay as a higher expectation stock than a typical biotech, while there is currently no fair ratio estimate available that might indicate a level the P/B could move toward over time.

Result: Price-to-Book of 4.8x (OVERVALUED)

However, this upbeat story can be knocked off course if clinical results disappoint or if ongoing net losses of $272.705 million continue to put pressure on funding needs.

Next Steps

The mix of clinical progress and valuation concerns may feel finely balanced, so it makes sense to review the underlying data yourself and move quickly to shape your own view by checking the 2 key rewards and 2 important warning signs

Looking for more investment ideas?

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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.