Tarsus Pharmaceuticals (TARS) recently reported full year 2025 results, with revenue of US$451.36 million and a net loss of US$66.42 million, and also filed a US$141.73 million shelf registration.

The latest earnings improvement and governance changes appear to sit behind a strong share price recovery, with a 30 day share price return of 17.01% and a one year total shareholder return of 76.78%. This is despite the year to date share price return still being slightly negative and longer term total shareholder returns over three and five years being very large.

If Tarsus has caught your eye and you are curious about what else is moving in healthcare, our screener of 28 healthcare AI stocks is a useful place to find your next idea.

With the shares up strongly over the past year and trading at US$75.52, the key question now is whether Tarsus is still trading at a discount or if the market is already pricing in future growth.

Most Popular Narrative: 13.7% Undervalued

With Tarsus Pharmaceuticals last closing at $75.52 against a widely followed fair value estimate of $87.50, the main narrative argues that the current price leaves room for upside based on its long term earnings potential.

Strong demographic tailwinds from an aging population and higher prevalence of chronic conditions such as Demodex blepharitis are expected to enlarge Tarsus' core addressable market, fueling long-term sustainable revenue increases.

Read the complete narrative. Read the complete narrative.

Want to see what is baked into that fair value number? The story leans on rapid revenue expansion, fatter margins, and a future earnings profile that looks very different to today. Curious how those ingredients add up to $87.50 per share rather than the current price?

On top of that fair value view, Tarsus also has a separate valuation signal. Our DCF model estimates that the shares, at $75.52, are trading at a very large discount to an implied future cash flow value of $335.28, reflecting expectations for substantial improvement from the current net loss of $66.42 million as the business scales.

The SWS DCF model projects a stream of future cash flows for the company, then discounts them back to today using a rate that reflects risk and time, in this case a discount rate of 6.956% from the narrative. That approach tends to be sensitive to assumptions like revenue growth, future profitability and reinvestment needs, which are particularly important for a commercial stage biopharmaceutical company with one key marketed product and a developing pipeline.

For a business like Tarsus, where current accounting earnings are negative but revenue guidance for 2025 sits in the US$440 million to US$445 million range and analysts expect earnings to turn positive over time, a cash flow based view can look very different to headline P/E ratios. It also helps frame how much of the recent share price performance may already reflect the most widely followed expectations around revenue growth, margin expansion and capital needs.

Result: Fair Value of $87.50 (UNDERVALUED)

However, this depends on XDEMVY maintaining strong uptake and on high spending for sales and marketing paying off. Any slowdown in prescriptions or increased reimbursement pressure could quickly challenge that view.

Another Angle: Price Signals A Different Story

If you step away from cash flows and just look at the P/S ratio, Tarsus trades at 7.1x sales versus 4.2x for the broader US pharmaceuticals group and 28.5x for its peer set. Our fair ratio sits at 7.8x. This suggests a tighter margin for error than the large DCF gap implies. Which signal do you trust more at $75.52?

Next Steps

If this mix of optimism and caution resonates with you, it is worth reviewing the details yourself and moving promptly to form your own view, starting with 3 key rewards.

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.