Does Harrow’s Recent FDA News Signal an Opportunity After a 7.5% Decline?

• Considering adding Harrow to your portfolio and curious whether its current price is a bargain? You are not alone. Let's get to the bottom of whether it's undervalued or if there's more beneath the surface.
• The stock has shown some interesting moves lately, with returns of -3.4% over the past week, a modest 1.0% uptick for the last month, a solid 6.4% gain year-to-date, though it is still down -7.5% for the last year.
• Many investors have been watching Harrow closely after recent FDA-related news sparked conversation about the company's strategic direction and new product candidates. These developments have added both excitement and uncertainty, contributing to some of the volatility in the share price.
• When it comes to value, Harrow currently scores a 4 out of 6 on our valuation checks. This suggests there are definite opportunities but also a couple of flags to look at. We will dig into several valuation approaches next, but be sure to read through to the end for an even smarter way to judge whether Harrow is truly worth your attention.

Find out why Harrow's -7.5% return over the last year is lagging behind its peers.

Approach 1: Harrow Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company's value by projecting its future cash flows and discounting them back to today's value. This approach aims to capture the fundamental earning power of a business, taking into account growth prospects and adjusting for risk and the time value of money.

For Harrow, the most recent Free Cash Flow (FCF) reported is -$75.1 Million. Analyst projections and further extrapolations anticipate a significant turnaround, with FCF expected to reach $290.8 Million by 2029. In fact, projections through 2035 show a continued trajectory upwards, signaling expectations for robust growth over the next decade.

Using a two-stage DCF model, the estimated fair value per share for Harrow comes out at $271.56. The DCF analysis suggests the stock is trading at an 85.7% discount to its intrinsic value. This indicates a major gap between the current market view and underlying fundamentals.

In summary, the DCF signals that Harrow appears substantially undervalued based on future cash flow forecasts.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Harrow is undervalued by 85.7%. Track this in your watchlist or portfolio, or discover 917 more undervalued stocks based on cash flows.

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

Approach 2: Harrow Price vs Sales

The Price-to-Sales (P/S) ratio is often a preferred metric for valuing companies in the pharmaceutical sector, especially when profits are volatile or negative. It helps investors assess how the market values each dollar of the company's revenue, making it a useful tool for growth-focused firms.

Growth prospects and risk profile both play important roles in what constitutes a "fair" P/S ratio. A higher growth outlook or lower risk may warrant paying a higher multiple. In contrast, slower growth or greater uncertainty typically pushes the fair value multiple lower.

Harrow's current P/S ratio stands at 5.76x. This is notably higher than the pharmaceuticals industry average of 4.03x and above its peer group average of 4.73x. On first glance, this might suggest the shares are expensive relative to the broader industry and direct competitors.

However, Simply Wall St’s proprietary Fair Ratio is designed to go beyond simple peer or industry comparison. The Fair Ratio for Harrow is 7.87x, reflecting factors like Harrow’s revenue growth potential, risk profile, margins, market capitalization, and industry dynamics. This approach gives a more nuanced answer as it considers the company's unique characteristics instead of just looking sideways at others.

With Harrow's current P/S ratio below the Fair Ratio, the stock appears undervalued by this measure.

Result: UNDERVALUED

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1443 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Harrow Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative combines your personal story or perspective on a company, your expectations for its future revenue, earnings, and margins, and ties these beliefs directly to your own estimation of its Fair Value.

This approach is more than just crunching numbers, as Narratives connect what you believe about Harrow's business momentum to a clear, dynamic financial forecast. Narratives are simple to create and are available right now on Simply Wall St's Community page, used by millions, making this a tool that's available to every investor.

With Narratives, you can easily see how your Fair Value compares to the current share price, helping you confidently decide whether to buy, hold, or sell. Best of all, Narratives update automatically when news or earnings reports are released, so your view stays relevant without any extra work.

For example, looking at Harrow today, one investor’s Narrative projects robust earnings growth, leading to a Fair Value target of $76.0 per share, while another sees risks capping the Fair Value at $42.0. This shows that your investment decision is as unique as your perspective.

Do you think there's more to the story for Harrow? Head over to our Community to see what others are saying!

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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