Arcus Biosciences, Inc. (NYSE:RCUS) shares have continued their recent momentum with a 27% gain in the last month alone. Unfortunately, despite the strong performance over the last month, the full year gain of 5.4% isn't as attractive.

Even after such a large jump in price, it's still not a stretch to say that Arcus Biosciences' price-to-sales (or "P/S") ratio of 15.3x right now seems quite "middle-of-the-road" compared to the Biotechs industry in the United States, where the median P/S ratio is around 14.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Arcus Biosciences' Recent Performance Look Like?

Arcus Biosciences could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Arcus Biosciences' to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 4.5%. The latest three year period has also seen an excellent 50% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next three years should generate growth of 6.3% per annum as estimated by the nine analysts watching the company. With the industry predicted to deliver 271% growth each year, the company is positioned for a weaker revenue result.

In light of this, it's curious that Arcus Biosciences' P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Arcus Biosciences' P/S?

Its shares have lifted substantially and now Arcus Biosciences' P/S is back within range of the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

When you consider that Arcus Biosciences' revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Arcus Biosciences you should know about.

If you're unsure about the strength of Arcus Biosciences' 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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