IDEAYA Biosciences (IDYA) is back in focus after reporting OptimUM-02 data showing longer median progression-free survival for its lead melanoma drug, darovasertib, and signaling plans for an NDA filing and broader pipeline expansion.

IDEAYA's recent darovasertib update comes after a choppy few months, with the share price up 4.7% over the last day and 2.6% over the past week, but down around 12% year to date. The 1 year total shareholder return of 54.83% points to strong longer term momentum that recent pullbacks have only partially offset.

If this kind of oncology news has your attention, it could be a good moment to widen your research and check out 30 healthcare AI stocks

With IDEAYA reporting a loss of US$140.06m on revenue of US$225.27m and trading at US$29.65, the question is whether the reported clinical progress and pipeline plans are already reflected in the stock, or if there is still a buying opportunity because markets are pricing in future growth.

Preferred Price to Sales Multiple of 11.6x: Is it justified?

On a P/S of 11.6x at a share price of $29.65, IDEAYA looks expensive compared to the wider US biotechs industry, but cheaper than some closer peers.

The P/S ratio compares the company’s market value with its revenue. This measure is often used for unprofitable biotechs like IDEAYA where earnings do not yet provide a useful anchor.

According to the data, IDEAYA is described as expensive versus the US biotechs industry average P/S of 10.2x, and expensive versus an estimated fair P/S of 2.3x that the market could eventually move closer to. At the same time, the current 11.6x P/S is framed as good value when lined up against a peer average of 27.3x, which shows investors are paying less per dollar of revenue than for some similar companies.

Result: Price-to-sales of 11.6x (OVERVALUED)

However, investors still face real risks, including darovasertib trial or regulatory setbacks and the possibility of IDEAYA continuing to report losses while funding its broad early stage pipeline.

Another way to look at value

While the current 11.6x P/S makes IDEAYA look expensive, our DCF model points in the opposite direction and suggests the stock is trading well below an estimated future cash flow value of $298.92. When one method flags overvaluation and another flags clear undervaluation, which signal do you pay more attention to?

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 51 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 mixed signals on value, it helps to see the full risk and reward picture for yourself, then move quickly if the balance shifts. Start by weighing 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.