Castle Biosciences (CSTL): Evaluating Valuation After New Data on DecisionDx-Melanoma Diagnostic Advances

Castle Biosciences (CSTL) just released new data on its DecisionDx-Melanoma test, showing it can refine how sentinel lymph node biopsies are decided for melanoma patients and help predict recurrence risk more accurately.

See our latest analysis for Castle Biosciences.

The latest data release and ongoing recognition as a Top Workplace have kept momentum building for Castle Biosciences, fueling a 52.7% 1-month share price return and drawing fresh attention to its long-term potential. Investors who have held on over the past three years have enjoyed a total shareholder return of nearly 70%. However, the five-year total return is still in the red, which underscores how recent growth has started to outweigh previous setbacks.

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Yet with growth accelerating and Castle Biosciences trading below analysts’ price targets, the question remains: is the recent rally only the start of a bigger move, or has the market already priced in the company’s improving fundamentals and future potential?

Most Popular Narrative: 30% Overvalued

With Castle Biosciences shares last closing at $35.72, the most widely followed narrative sees fair value set 30% lower. This sizable gap highlights differing views on the company’s ability to turn momentum into sustainable growth.

Castle's rapid expansion of its test menu, especially into high-growth, underpenetrated indications like gastrointestinal diagnostics (TissueCypher) and new pipeline areas such as atopic dermatitis, positions the company to tap into substantially larger patient populations and diversify revenue streams, directly supporting long-term revenue growth. The ongoing shift toward precision and individualized medicine across healthcare systems, combined with Castle's robust real-world evidence (e.g., NCI SEER study showing 32% reduction in melanoma mortality), sets the stage for broader clinical adoption and increased commercial and payer demand, likely boosting test volumes and supporting higher revenues.

Read the complete narrative.

Ever wonder what kind of financial shift justifies such an elevated price target? The narrative’s core assumptions rely on enhanced margins, significant revenue projections, and a move toward sector-leading profitability. The details behind these optimistic projections may surprise you. See what’s driving this ambitious valuation.

Result: Fair Value of $35.62 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, setbacks such as reimbursement challenges or slower than expected adoption of new tests could quickly derail the optimistic outlook around Castle Biosciences.

Find out about the key risks to this Castle Biosciences narrative.

Another View: What Does the SWS DCF Model Say?

While analysts set fair value near $35.62, our SWS DCF model presents a different perspective. It values Castle Biosciences at $63.45, indicating the stock could actually be undervalued by over 40%. If this is the case, investors may be missing a substantial opportunity, or the market may be seeing risks that the model does not capture.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Castle Biosciences 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 921 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Castle Biosciences Narrative

If you have a different perspective or want to dig deeper into the numbers yourself, it takes only a few minutes to create your own view and see where the evidence leads. Do it your way

A great starting point for your Castle Biosciences research is our analysis highlighting 1 key reward and 1 important warning sign 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.

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