What happened

Shares of RedHill Biopharma (NASDAQ:RDHL) are on the move after Cantor Fitzgerald initiated coverage of the biopharmaceutical company. Investors excited about the buy rating have pushed the stock 20.3% higher as of 3:15 p.m. EDT on Tuesday.

So what 

RedHill Biopharma has three drugs on the market and six in clinical trials right now. With so much under the hood, it's no wonder analysts think it's a bargain at its ultralow valuation. Yesterday this company had a market cap of around $360 million.

Investor looking at an upward sloping chart on their computer.

Image source: Getty Images.

Early last year the company began marketing Talicia for the treatment of Helicobacter pylori infections in adults. Roughly one-third of people get an H. pylori infection at some point in their life. While they usually clear up without lingering issues, these infections can cause peptic ulcers and increase the risk of stomach cancer.

The company is also developing opaganib, a novel sphingosine kinase inhibitor, as a potential stomach cancer treatment. Opaganib is in a phase 2 oncology trial at the moment, plus enrollment in a phase 2/3 study has been completed for its use in treatment of COVID-19. 

Now what

Sales of RedHill's commercial-stage drugs aren't exactly amazing. Despite it being in the middle of multiple new drug launches, top-line revenue during the second quarter came in at a measly $21.5 million, which was only about $600,000 more than the company reported in the previous-year period.

Multibillion-dollar valuations aren't uncommon for companies that have zero commercial-stage products, so it's not hard to see why Cantor Fitzgerald thinks this stock is undervalued. The important thing for individual investors to understand is that the stock only appears undervalued on a risk-adjusted basis. While eventual approval of its clinical-stage drugs could propel the stock many times higher, there's still a lot that could go wrong and result in irrecoverable losses.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.