TWST: Share Valuations Will Stabilize As End Markets Remain Strong

Key Takeaways

• Broadening customer base, innovative product launches, and industry tailwinds are driving sustained growth and widening Twist's market opportunity.
  
• Increased operational efficiency, product diversification, and global market trends support expanding margins and improved long-term earnings stability.
  
• Heavy customer concentration, ongoing losses, volatile margins, and stagnant emerging market growth threaten revenue stability, profitability, and long-term competitive positioning in dynamic genomics markets.

Catalysts

Manufactures and sells synthetic DNA-based products.

• Expansion of Twist's customer base, especially among smaller academic clients and long-tail customers, combined with the successful rollout of new synthetic biology (SynBio) product lines, is likely to drive sustained top-line growth and broaden the company's addressable market, positively impacting future revenue.
  
• High demand from large pharma, biotechnology, and clinical diagnostic customers for personalized medicine, genomics, and next-generation sequencing (NGS) services continues to accelerate, supported by long-term increases in global life sciences R&D investment, which should fuel ongoing revenue growth and earnings stability.
  
• Continuous product innovation, including new gene fragment offerings and anticipated upcoming product launches, reflects strategic reinvestment into R&D and manufacturing infrastructure, supporting scalability and improved gross margins over the medium to long term.
  
• Significant improvements in gross margin (now above 50%) through volume leverage, process improvements, and increased vertical integration signal ongoing margin expansion and a clear near-term path toward adjusted EBITDA breakeven, indicating robust future earnings potential.
  
• Diversification across multiple end markets and geographies, coupled with strong underlying industry trends like AI-driven drug discovery and global genomics market expansion, provides resilience against market cycles and supports steady, long-term revenue and profit growth.

Twist Bioscience Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Twist Bioscience's revenue will grow by 20.4% annually over the next 3 years.
• Analysts are not forecasting that Twist Bioscience will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Twist Bioscience's profit margin will increase from -31.7% to the average US Biotechs industry of 17.0% in 3 years.
• If Twist Bioscience's profit margin were to converge on the industry average, you could expect earnings to reach $127.9 million (and earnings per share of $1.82) by about August 2029, up from -$136.7 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 71.7x on those 2029 earnings, up from -57.4x today. This future PE is greater than the current PE for the US Biotechs industry at 16.3x.
• Analysts expect the number of shares outstanding to grow by 3.89% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.41%, as per the Simply Wall St company report.

Risks

• Twist Bioscience remains unprofitable, with an expected adjusted EBITDA loss of $45 million to $47 million for fiscal 2025, and only a goal-not a guarantee-to achieve breakeven in 2026; persistent negative operating margins increase the risk of future dilution or an eventual capital raise, which could weigh on earnings per share and shareholder value over time.
  
• A substantial portion of NGS (Next-Generation Sequencing) revenue is concentrated with a small number of large customers-44% of NGS revenue comes from just the top 10 customers-meaning revenue could be volatile or contract sharply if any of these relationships weaken or are lost, posing a risk to recurring revenue stability and overall top line growth.
  
• The company's guidance and margin improvements partly benefited from favorable order timing and mix in recent quarters, which may not repeat; this creates uncertainty about true underlying margin expansion and raises concerns over the sustainability of gross margins and predictable revenue growth into future periods.
  
• Intense competition and potential commoditization in both the NGS and SynBio markets are acknowledged, especially as the company broadens market access and pursues smaller accounts or academic/government customers; this could lead to downward pricing pressure, compress gross margins, and limit future profitability as competition intensifies or innovation outpaces the company's offerings.
  
• Growth in the APAC region remains stagnant and total revenue exposure to China is minimal (approximately 1.5% of Q3 revenue), limiting Twist's ability to capitalize on the rapid expansion of genomics markets in major emerging economies, which may restrict long-term revenue diversification and growth opportunities compared to industry peers who succeed in these markets.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $105.3 for Twist Bioscience based on their expectations of its future earnings growth, profit margins and other risk factors.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $120.0, and the most bearish reporting a price target of just $36.0.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $753.3 million, earnings will come to $127.9 million, and it would be trading on a PE ratio of 71.7x, assuming you use a discount rate of 7.4%.
• Given the current share price of $125.21, the analyst price target of $105.3 is 18.9% lower. Despite analysts expecting the underlying business to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.