Analyst sentiment shift puts Biohaven (BHVN) in focus

Recent analyst actions around Biohaven (BHVN), including higher consensus earnings estimates and a favorable Zacks Rank #2 rating, have put the biotech name back on many investors’ watchlists.

Biohaven’s share price has been volatile, with a 7 day share price return of 7.2% and a 90 day share price return of 45.8%. However, the 1 year total shareholder return of a 72% decline shows that longer term holders have faced significant pain even as recent momentum has picked up.

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With the share price still well below its 1 year level and the latest analyst target sitting above the current US$11.78, you have to ask: is Biohaven undervalued here, or is the market already pricing in future growth?

Preferred multiple of Price to Book: Is it justified?

For Biohaven, the usual shortcut of looking at a simple valuation multiple quickly runs into a problem, its P/B sits at roughly -91.1x, reflecting negative equity on the balance sheet.

P/B compares a company’s market value to its accounting equity, so when liabilities are greater than assets the ratio becomes negative and stops being a useful yardstick. For a loss making biotech with heavy R&D investment and minimal current revenue, that kind of balance sheet structure is not unusual. However, it does mean a quick multiple check does not tell you much about what the market is paying for future potential.

Because of that, the usual comparison to the US biotechs industry average P/B of 2.7x does not really hold. The very large gap is more about accounting and funding structure than a clean signal on valuation. It also underlines why investors often focus on pipeline progress, cash runway, and future revenue expectations instead of headline book value ratios for companies like Biohaven.

Result: Price-to-book of -91.1x (ABOUT RIGHT TO TREAT WITH CAUTION)

However, you still need to weigh the lack of current revenue against annual net income losses of US$780.11m, as well as the risk that clinical trials disappoint or face delays.

Build Your Own Biohaven Narrative

If you look at the numbers and reach different conclusions, or simply want to weigh the data yourself, you can build a custom view of Biohaven in just a few minutes and Do it your way.

A great starting point for your Biohaven research is our analysis highlighting 1 key reward and 5 important warning signs 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.