Stoke Therapeutics (STOK): Assessing Valuation After Strong Sales Growth and Swing to Profitability

Stoke Therapeutics (STOK) just posted its third quarter and nine-month results, showing a major jump in sales and swinging from a net loss to a net income for the year so far. This financial shift has likely caught the eye of investors following the stock.

See our latest analysis for Stoke Therapeutics.

Stoke Therapeutics’ impressive nine-month turnaround and recent presentation at the Guggenheim Healthcare Innovation Conference have added fuel to the stock’s momentum. While the 90-day share price return is a strong 43.4% and year-to-date share price return sits at 135.2%, the one-year total shareholder return of 123.2% highlights broad investor optimism about the company’s future growth prospects.

If Stoke’s surge has you rethinking what’s possible in biotech, it could be an ideal moment to expand your search and discover See the full list for free.

But with shares up more than 130 percent year to date, investors are left to wonder if Stoke is still trading at an attractive valuation, or if the market has already priced in all that future promise.

Price-to-Earnings of 37.3x: Is it justified?

Stoke Therapeutics shares trade at a Price-to-Earnings (PE) ratio of 37.3x, significantly above both the US Biotechs industry average and peer group. This premium valuation follows the company’s recent switch to profitability and a period of strong share price gains.

The PE ratio shows what the market is willing to pay for each dollar of earnings. High PE multiples like this often reflect expectations for major future earnings growth, but they can also signal that the market is prepared to pay up for companies seen as breakthrough leaders, even if growth rates are uncertain or volatile.

Compared to the US Biotech industry average of 17.4x and the peer average of 20.7x, Stoke’s valuation is markedly expensive. The company’s PE ratio also far exceeds the estimated fair PE ratio of 13.8x. This suggests the current share price may be hard to justify if earnings growth does not accelerate or if sentiment changes.

Explore the SWS fair ratio for Stoke Therapeutics

Result: Price-to-Earnings of 37.3x (OVERVALUED)

However, slowing revenue growth and declining net income could signal challenges ahead if Stoke is unable to sustain its current momentum.

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

Another View: SWS DCF Model Perspective

While Stoke Therapeutics appears richly valued when judged by its earnings ratio, our DCF model tells a different story entirely. The SWS DCF model estimates the fair value at just $12.66 per share, which is far below the current price. This suggests Stoke may be significantly overvalued on a cash flow basis. Does the market see something the models do not?

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 Stoke 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 905 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 Stoke Therapeutics Narrative

If you have a different perspective or want to dig deeper into Stoke Therapeutics’ story, you can quickly craft your own view in just a few minutes. Do it your way

A great starting point for your Stoke Therapeutics research is our analysis highlighting 1 key reward 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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