• If you are wondering whether Arrowhead Pharmaceuticals' current share price offers good value, this article will walk through what the numbers are saying about the stock.
• The share price is at US$67.60, with returns of 2.6% over the last 7 days, a 2.0% decline over 30 days, a 0.3% decline year to date, a 243.0% gain over 1 year, a 105.0% gain over 3 years, and a 12.0% decline over 5 years.
• Recent price moves sit against a backdrop of continuing interest in the company, with investors reacting to news around Arrowhead Pharmaceuticals' pipeline progress and partnerships. This mix of attention and changing expectations helps explain some of the recent share price swings.
• On Simply Wall St's 6 point valuation check, Arrowhead Pharmaceuticals scores 3 out of 6. We will break this down using several common valuation approaches, then turn to a more rounded way to think about what the stock could be worth by the end of the article.

Approach 1: Arrowhead Pharmaceuticals Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a company could be worth by projecting its future cash flows and then discounting them back to today’s value. It is essentially asking what those future dollars are worth in today’s terms.

For Arrowhead Pharmaceuticals, the model used is a 2 Stage Free Cash Flow to Equity approach based on cash flows in $. The latest twelve month free cash flow is a loss of $83.8 million, and the ten year projections include several years of negative free cash flow before turning positive. By 2030, projected free cash flow is $348.5 million, with later years based on extrapolations rather than direct analyst estimates.

Pulling all of those projected cash flows together and discounting them, the DCF model suggests an intrinsic value of about $140.39 per share. Compared with the current share price of $67.60, this implies the stock is 51.8% undervalued according to this set of assumptions.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Arrowhead Pharmaceuticals is undervalued by 51.8%. Track this in your watchlist or portfolio, or discover 883 more undervalued stocks based on cash flows.

Approach 2: Arrowhead Pharmaceuticals Price vs Sales

For companies where earnings are limited or volatile, the P/S ratio is often more useful than P/E because it focuses on revenue rather than profits, which can swing around with R&D spending and one off items. Investors usually pay a higher or lower P/S depending on what they think about future growth, profitability, and risk, so there is no single “right” number.

Arrowhead Pharmaceuticals currently trades on a P/S of 11.20x. That sits close to the broader Biotechs industry average P/S of 11.83x, and above the peer group average of 6.20x. Simply Wall St’s Fair Ratio for Arrowhead Pharmaceuticals is 9.63x, which is the P/S level implied by factors such as its growth profile, margins, industry, market cap and risk characteristics.

This Fair Ratio aims to be more tailored than a simple comparison with industry or peers, because it adjusts for the company’s own fundamentals instead of assuming that “one size fits all.” On this basis, Arrowhead Pharmaceuticals’ actual P/S of 11.20x sits above the Fair Ratio of 9.63x, which points to the shares looking overvalued on this measure.

Result: OVERVALUED

P/S ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1431 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Arrowhead Pharmaceuticals Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which are simply your story about a company linked directly to your assumptions for future revenue, earnings, margins and what you think is a reasonable fair value.

A Narrative connects three pieces in one place: the business story you believe in, the financial forecast that flows from that story, and the fair value estimate that falls out of those numbers.

On Simply Wall St, Narratives are available on the Community page and used by millions of investors as an easy tool to compare their own fair value with the current share price, see whether they think a stock looks expensive or cheap, and watch that view update automatically when new earnings, news or other data arrives.

For Arrowhead Pharmaceuticals, one investor might build a Narrative with higher assumed future margins and a higher fair value estimate, while another could use more conservative revenue expectations and arrive at a much lower fair value, which shows how the same stock can support very different but clearly framed views.

Do you think there's more to the story for Arrowhead Pharmaceuticals? Head over to our Community to see what others are saying!

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.