Exelixis (EXEL) Stock Still Looks Like A Bargain On Earnings

Exelixis stock has quietly stacked up a strong share price record over the past five years, yet the current valuation checks still suggest the market may not be fully pricing in its fundamentals.

• Exelixis has returned 228.6% over five years, which puts a spotlight on whether the current share price fairly reflects that track record.
• Expectations around the durability of its revenue and cash flow from oncology treatments can support the current valuation, while any setback in clinical progress or competitive pressure may weigh on what investors are willing to pay for the stock.
• Across the broader checks, Exelixis screens as undervalued in 5 out of 6 valuation tests, which points to a company that still looks inexpensive on several metrics.

The issue now is whether Exelixis at around US$55 per share offers enough valuation cushion after its multi year run, or whether most of the easy upside has already been realized.

Find out why Exelixis' 21.4% return over the last year is lagging behind its peers.

Is Exelixis Still Cheap on Earnings?

The P/E ratio fits Exelixis well because it already generates earnings that can be compared with other biotechs. Right now, Exelixis trades on a P/E of about 16.7x, which is slightly below the broader biotech industry average of roughly 16.9x and well below the peer group average of about 25.7x. That places the stock at the lower end of the earnings multiples often seen for oncology focused companies.

A tailored fair P/E ratio for Exelixis, which factors in its industry, size, risk profile and profitability, sits higher at around 21.2x. Compared with the current 16.7x, that gap indicates the market is applying a discount to the stock relative to what this framework would suggest based on its earnings profile. For investors who believe Exelixis can at least sustain its earnings base, that discount may be more significant than the small difference versus the wider biotech average.

On the P/E multiple alone, Exelixis stock appears undervalued relative to both its custom fair ratio and higher priced peers.

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

The Exelixis Narrative: What Would Justify Today's Price?

Simply Wall St Narratives for Exelixis are designed to connect the valuation puzzle above with clear scenarios that spell out what would need to happen to Exelixis' growth, margins and earnings for the stock to be worth materially more or less than today's price. They sit on the company's Community page. Each Narrative links a fair value estimate to a specific story about Exelixis' potential catalysts and risks, so you can track over time which version of events appears to be unfolding.

Community views on Exelixis sit far apart, with one side focused on pipeline upside and the other on margin and pricing pressure.

Bull case: 11% undervalued

"The company's robust cash flow, substantial balance sheet, and active share repurchase program provide significant financial flexibility for opportunistic business development and licensing deals..."

Read the full Bull Case to see why Exelixis could be undervalued

Bear case: 35% overvalued

"The increasing percentage of Exelixis' business coming from heavily discounted payer channels such as 340B, which now make up over 24% of total volume compared to 20% a year earlier, signals intensifying margin compression..."

Read the full Bear Case to see why Exelixis could be overvalued

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

The Bottom Line

Exelixis still screens as undervalued on market multiples, with its current P/E sitting below both a tailored fair ratio and many oncology peers. That discount will likely only close if investors gain more confidence that revenue, margins and cash generation from its oncology franchise can hold up against pricing pressure and competition. From here, the key question is whether that apparent value reflects an opportunity in Exelixis stock or a market judgment that future profitability and pricing power may be harder to sustain.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com