ADC Therapeutics SA (NYSE:ADCT) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. Looking at the bigger picture, even after this poor month the stock is up 59% in the last year.

After such a large drop in price, ADC Therapeutics' price-to-sales (or "P/S") ratio of 5.1x might make it look like a strong buy right now compared to the wider Biotechs industry in the United States, where around half of the companies have P/S ratios above 12x and even P/S above 66x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

What Does ADC Therapeutics' Recent Performance Look Like?

While the industry has experienced revenue growth lately, ADC Therapeutics' revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

How Is ADC Therapeutics' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as ADC Therapeutics' is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered a frustrating 62% decrease to the company's top line. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 29% each year over the next three years. With the industry predicted to deliver 210% growth per annum, the company is positioned for a weaker revenue result.

With this information, we can see why ADC Therapeutics is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does ADC Therapeutics' P/S Mean For Investors?

ADC Therapeutics' P/S looks about as weak as its stock price lately. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of ADC Therapeutics' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 5 warning signs we've spotted with ADC Therapeutics (including 1 which is a bit unpleasant).

If you're unsure about the strength of ADC Therapeutics' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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