Assessing 3SBio’s Share Price After 482% Rally and Recent Regulatory Updates

If you have been eyeing 3SBio, you are not alone. Deciding what to do next with a stock posting some of the market's most dramatic long-term returns is a challenge any investor would love to have. After all, 3SBio’s share price has soared by 481.6% over the past year and an astonishing 524.9% in the last three years. That is momentum most companies can only dream of.

But it's not all smooth sailing in the short run. The past week saw the stock dip by 8.7%, reminding investors that rapid growth is rarely a straight line. Still, the stock has managed to regain its footing over the last month, posting a 1.8% gain, and its year-to-date return is a jaw-dropping 445.1%. These moves come amid shifting sentiment in the biopharma industry as investors weigh new developments and updated regulatory guidance, which often affect the perceived risks and opportunities in cutting-edge healthcare companies like 3SBio.

Against that backdrop, the big question is whether the company’s soaring price is still justified by its underlying value. Some might wonder if the current valuation is too stretched given such rapid appreciation. To help answer that, we will break down 3SBio’s standing using six different valuation checks. The company is currently undervalued in four out of six, which gives it a healthy valuation score of 4.

Let's dig into these valuation approaches to see what is really driving this metric and stay tuned, because we will also look at a smarter way to think about a stock’s true value before the article is finished.

3SBio delivered 481.6% returns over the last year. See how this stacks up to the rest of the Biotechs industry.

Approach 1: 3SBio Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's value by projecting future cash flows and discounting them back to today, reflecting the time value of money. For 3SBio, this approach centers around its Free Cash Flow (FCF), reported at CN¥2.24 billion over the last twelve months. Analysts project impressive growth, forecasting FCF to reach CN¥4.53 billion by 2029. For years beyond 2029, Simply Wall St extrapolates further and anticipates FCF to surpass CN¥6.58 billion by 2035. All projections are calculated in the company's reporting currency, CN¥.

Based on these cash flow forecasts and using a two-stage free cash flow to equity model, the estimated intrinsic value for 3SBio comes out to HK$52.70 per share. When compared to the current market price, the DCF model suggests the stock is trading at a 38.2% discount to its intrinsic value. This indicates significant undervaluation at today's price.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for 3SBio.

Our Discounted Cash Flow (DCF) analysis suggests 3SBio is undervalued by 38.2%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: 3SBio Price vs Earnings

The Price-to-Earnings (PE) ratio is especially useful for valuing profitable companies like 3SBio because it relates the company’s share price to its actual earnings, giving investors a sense of how much they are paying for each unit of profit. In markets where companies are generating positive earnings, PE is the metric of choice for a quick valuation check.

It is important to understand that what counts as a "normal" or "fair" PE ratio is not set in stone. Companies with strong growth prospects, lower perceived risk, or higher profitability often command higher PE multiples. Conversely, if growth is limited or risks are elevated, a lower PE is generally in order.

Currently, 3SBio trades at a PE of 30.2x. Looking at benchmarks, this is roughly in line with the Biotechs industry average of 29.6x but substantially below the peer average of 55.7x. However, these simplistic comparisons do not factor in the company’s unique growth potential, risk profile, and profitability.

That is where the Simply Wall St "Fair Ratio" comes in. Their Fair Ratio for 3SBio is 22.0x and is calculated by weighing factors such as earnings growth, industry trends, profit margins, company size, and associated risks. This gives a more tailored view of what PE the company deserves, going beyond what any simple industry or peer average might suggest.

Comparing the Fair Ratio of 22.0x to 3SBio’s actual PE of 30.2x, the market is valuing the company somewhat higher than what appears justified once growth and risk are factored in. This suggests the stock is modestly overvalued based on this metric alone.

Result: OVERVALUED

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

Upgrade Your Decision Making: Choose your 3SBio Narrative

Earlier we mentioned there is an even better way to understand valuation. Let us introduce you to Narratives. A Narrative is your story or perspective on a company, tying together your assumptions for future revenue, earnings, and margins with what you believe is a fair value. This approach connects a company’s story with its financial forecast and results in a fair value estimate, making investment decisions much more intuitive.

Narratives are easy to use and available right on Simply Wall St’s Community page, trusted by millions of investors. They guide you on when to buy or sell by letting you compare your own or others' Fair Value estimates to the current share price. Since Narratives update dynamically as fresh news or new earnings are released, your analysis always stays relevant.

For example, some investors believe 3SBio’s fair value is much higher due to rapid innovation, while others see more risk and estimate a lower value. Narratives give you the tools and community context to see every side, allowing you to upgrade your decision making with both numbers and story on your side.

Do you think there's more to the story for 3SBio? Create your own Narrative to let the Community know!

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.

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