Tango Therapeutics (TNGX) recently appointed biopharmaceutical executive Robert Azelby to its Board of Directors, as the company advances investigational PRMT5 inhibitor vopimetostat toward potential late stage development in pancreatic cancer.

Tango Therapeutics' share price has recently shown strong momentum, with a 30 day share price return of 43.18% and a year to date share price return of 252.41%. The 1 year total shareholder return is very large, which hints that investors are reassessing both potential growth and risks around its oncology pipeline.

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With Tango Therapeutics now valued at about US$4.6b and trading at a discount to analyst price targets and intrinsic estimates, investors face a key question: is there still mispricing here, or is the market already incorporating expectations of future growth?

DCF valuation: what the SWS model implies for Tango Therapeutics

The SWS DCF model estimates Tango Therapeutics has a fair value of about $51.54 per share, compared with the recent close at $31.47, which points to a sizeable gap between modelled future cash flows and the current market price.

The DCF framework projects a stream of future cash flows for Tango Therapeutics and then discounts them back to today using a required rate of return, so those distant cash flows are worth less than near term ones. This gives a single present value estimate that can be compared directly with the share price.

For a loss making biotech like Tango Therapeutics, this type of cash flow based model places most of the weight on expectations around future revenue growth, margins and investment needs rather than current earnings. With revenue forecast to grow at a high rate and the business still unprofitable, the DCF output highlights how sensitive the valuation can be to assumptions about when and how the pipeline translates into cash generation.

Result: DCF Fair value of $51.54 (UNDERVALUED)

However, the Tango Therapeutics story could shift quickly if clinical data disappoints or if ongoing losses of US$107.232m pressure funding plans and investor sentiment.

Another view on Tango Therapeutics' valuation

While the SWS DCF model suggests Tango Therapeutics is undervalued, its current P/B ratio of 11.6x is high compared with the US Biotechs industry at 2.6x and peers at 4.6x. That gap points to valuation risk if expectations around future progress or funding shift.

For a closer look at how this P/B comparison stacks up against other ways of assessing Tango Therapeutics, take a look at the See what the numbers say about this price — find out in our valuation breakdown.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Tango Therapeutics 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 44 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

If you feel that the Tango Therapeutics story is finely balanced between promise and concern, take a closer look at the underlying data and form your own view by weighing the 2 key rewards and 3 important warning signs.

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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.