Denali Therapeutics (DNLI): Exploring Valuation as Shares Recover 4% After a Challenging Year

Denali Therapeutics (DNLI) shares have swung higher in recent trading, gaining more than 4% in today’s session. This uptick follows a challenging year for the stock. Investors are taking a closer look after recent movement.

See our latest analysis for Denali Therapeutics.

Denali Therapeutics’ 4% gain today stands out after a tough stretch, as the company has struggled with a year-to-date share price return of -27.93% and a one-year total shareholder return of -52.44%. While recent momentum may signal renewed investor interest, the longer-term trend remains challenging.

If you’re looking to compare what’s driving momentum elsewhere in healthcare, take the next step and discover See the full list for free.

With share prices still far below analyst targets and recent revenue and income showing growth, the question for investors is whether Denali Therapeutics is undervalued or if the market has already priced in all the upside.

Price-to-Book of 2.4: Is it justified?

Denali Therapeutics trades at a price-to-book ratio of 2.4, placing it well below the peer average of 6.1. At the last close price of $15.02, this suggests the market is pricing the company at a significant discount compared to other biotechs in terms of assets.

The price-to-book ratio measures a company's market value against its book value, providing insight into how investors value a firm's assets relative to its current price. For biotechs, where future earnings are uncertain, this multiple reflects what investors believe about the company’s potential to convert its assets into profits.

With Denali’s ratio much lower than its peers, the implication is that the market has limited expectations for the company's near-term profitability or is more cautious about its growth path. This discount could indicate skepticism over Denali’s ability to close the profitability gap that typically justifies higher ratios within the sector. If the sector’s fair ratio is a level the market could eventually move toward, Denali’s cheaper multiple may either be an opportunity or a warning.

Compared to the broader US Biotechs industry, where the average price-to-book is 2.5, Denali still sits slightly below average, reinforcing the discounted valuation view. There is insufficient data to provide a fair value regression ratio for now.

See what the numbers say about this price — find out in our valuation breakdown.

Result: Price-to-Book of 2.4 (UNDERVALUED)

However, persistent net losses and the lack of recent revenue raise concerns about Denali Therapeutics’ ability to turn its discounted valuation into sustained upside.

Find out about the key risks to this Denali Therapeutics narrative.

Another View: SWS DCF Model Shows a Different Picture

While the market discounts Denali Therapeutics on its asset base, our DCF model tells a very different story. According to this cash flow calculation, the fair value is much lower than the current market price. This suggests shares may actually be overvalued using the DCF approach. Does this mean the recent price rebound could be short lived, or is the market seeing something our model cannot 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 Denali 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 884 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 Denali Therapeutics Narrative

If the analysis above doesn't align with your perspective, you can always take the data in your own direction by generating a personal narrative in just a few minutes. Do it your way

A great starting point for your Denali Therapeutics research is our analysis highlighting 2 key rewards and 2 important warning signs 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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