Zai Lab (NasdaqGM:ZLAB) Valuation in Focus After FORTITUDE-101 Data Tempers Bemarituzumab Hopes

If you are keeping an eye on Zai Lab (NasdaqGM:ZLAB), the latest news surrounding its Phase 3 FORTITUDE-101 trial might have left you wondering what comes next. The company revealed that its treatment, bemarituzumab in combination with chemotherapy, initially showed a meaningful survival advantage for gastric cancer patients. However, the benefit lost some momentum in the trial’s final analysis. Rather than push ahead immediately, Zai Lab is opting to wait for data from a different, ongoing study before seeking regulatory approval. That decision adds a new wrinkle for anyone weighing the company’s prospects.

This update arrives after a year of considerable movement in Zai Lab shares. While the past month has been choppy, with some recent negative moves, shares have actually climbed 55% over the past year. That kind of recovery could mean growing investor optimism or a reset in expectations, especially given Zai Lab’s solid annual revenue and net income growth figures, even as it continues to operate at a loss. The final results of the FORTITUDE-101 trial and the decision to pause on filings seem to have recalibrated risk perceptions at a crucial moment for the company’s pipeline.

So after all this, is Zai Lab’s share price underestimating the future potential of its cancer pipeline, or is the market already ahead of the game in pricing in growth?

Most Popular Narrative: 42.6% Undervalued

The current widely followed narrative suggests Zai Lab is trading well below its estimated fair value, pointing to significant potential upside if expected growth materializes. Analysts behind this view use a thorough, multi-year financial modeling approach that includes optimistic projections on sales, margins, and future profit multiples.

Multiple high-potential product launches and label expansions over the next 12 to 18 months (including VYVGART, bemarituzumab, KarXT, TIVDAK, Tumor Treating Fields), combined with a deep pipeline in oncology and immunology, are expected to significantly increase Zai Lab's addressable market and diversify revenue streams. This is expected to support both top-line growth and future earnings.

How does Wall Street calculate such a big undervaluation? Here is a hint: it all comes down to bold projections and a future profit multiple that rivals top-tier growth stocks. What are the game-changing numbers woven into this bullish scenario? Do not miss the dramatic leap in revenue and margins these forecasts are banking on.

Result: Fair Value of $56.31 (UNDERVALUED)

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

However, persistent competition in China and delays in reimbursement decisions could quickly erode Zai Lab’s margin gains. This could make future profitability less certain.

Find out about the key risks to this Zai Lab narrative.

Another View: SWS DCF Model

Switching gears, our DCF model also suggests the shares are undervalued, even after stress-testing the growth assumptions. Yet, every model has its limits. How much trust can we place in long-range forecasts?

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 Zai Lab 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 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 Zai Lab Narrative

If you see things differently or want to unpack the numbers on your own terms, you can develop a narrative in just a few minutes. Do it your way.

A good starting point is our analysis highlighting 3 key rewards investors are optimistic about regarding Zai Lab.

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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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