Is Madrigal Pharmaceuticals Stock Still Attractive After Its 798% Three Year Surge?

• If you are wondering whether Madrigal Pharmaceuticals is still worth a look after its huge run-up, or if the smart money has already moved on, this breakdown is for you.
• The stock has surged an eye-catching 798.5% over the last 3 years and is still up 86.8% year to date, even after a recent 2.5% dip over the past week.
• Those moves have been driven by growing optimism around Madrigal's lead NASH therapy, which recently gained more attention as investors reassessed the commercial potential of its late stage pipeline. At the same time, regulatory and competitive developments across the liver disease space have sharpened focus on which players might actually capture meaningful market share.
• Despite that backdrop, Madrigal scores a 4/6 valuation check score, suggesting the market may not be fully pricing in all scenarios yet. Next, this article will walk through the usual valuation lenses, then finish with a more powerful way to think about what this price tag really implies.

Madrigal Pharmaceuticals delivered 87.3% returns over the last year. See how this stacks up to the rest of the Biotechs industry.

Approach 1: Madrigal Pharmaceuticals Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a business is worth today by projecting the cash it could generate in the future and discounting those cash flows back to the present.

For Madrigal Pharmaceuticals, the latest twelve month Free Cash Flow (FCF) is roughly -$164.0 Million, reflecting heavy investment ahead of potential commercialization. Analysts and extrapolated estimates see this swinging sharply positive, with projected FCF reaching about $3.8 Billion by 2035. Simply Wall St uses a 2 Stage Free Cash Flow to Equity model that relies on analyst forecasts through 2029, then extends those trends further out to capture a more mature phase of Madrigal's NASH opportunity.

On this basis, the DCF model implies an intrinsic value of about $2,923 per share. With the DCF suggesting the stock is trading at a 79.9% discount to that estimate, the market appears to be heavily underpricing Madrigal's long term cash generation potential in dollar terms.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Madrigal Pharmaceuticals is undervalued by 79.9%. Track this in your watchlist or portfolio, or discover 908 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 Madrigal Pharmaceuticals.

Approach 2: Madrigal Pharmaceuticals Price vs Sales

For high growth biotechs that are not yet consistently profitable, the Price to Sales ratio is often the cleanest way to compare valuation, because it focuses on what investors are paying for each dollar of current or near term revenue rather than volatile earnings.

In general, faster growth and lower perceived risk justify a higher normal multiple, while slower growth or higher uncertainty call for a lower one. Madrigal currently trades on a Price to Sales ratio of about 18.0x. That is above the broader Biotechs industry average of roughly 12.1x, but sits below the 26.3x average of closer peers. This suggests the market is already assigning it a meaningful premium for its NASH opportunity, but not an extreme one.

Simply Wall St's Fair Ratio framework goes a step further by estimating what a reasonable Price to Sales multiple should be, given Madrigal's specific growth profile, profitability prospects, industry, market cap and risk factors. For Madrigal, this Fair Ratio comes out at around 19.4x, modestly above the current 18.0x level. This implies the shares are trading at a discount to the multiple its fundamentals might otherwise command.

Result: UNDERVALUED

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1442 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Madrigal Pharmaceuticals Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let us introduce you to Narratives, a simple tool on Simply Wall St's Community page that helps you connect Madrigal Pharmaceuticals' story to a set of financial forecasts and a fair value estimate, then compare that fair value to today’s share price to decide whether it looks like a buy, hold, or sell for you. The tool automatically updates your view as new earnings, trial data, or news is released. For example, one investor might build a bullish Madrigal Narrative based on faster Rezdiffra uptake, higher long term margins and a fair value well above the current price, while another takes a more cautious Narrative with slower international penetration, pressured margins, and a fair value closer to or even below the current market price.

Do you think there's more to the story for Madrigal Pharmaceuticals? 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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