Fate Therapeutics, Inc. (NASDAQ:FATE) shares have retraced a considerable 28% in the last month, reversing a fair amount of their solid recent performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 16% in that time.

Following the heavy fall in price, Fate Therapeutics may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 9x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 12.7x and even P/S higher than 64x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

How Fate Therapeutics Has Been Performing

Fate Therapeutics hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

How Is Fate Therapeutics' Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 34% decrease to the company's top line. Still, the latest three year period has seen an excellent 102% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 54% per year as estimated by the analysts watching the company. With the industry predicted to deliver 164% growth per annum, that's a disappointing outcome.

With this information, we are not surprised that Fate Therapeutics is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What We Can Learn From Fate Therapeutics' P/S?

Fate Therapeutics' recently weak share price has pulled its P/S back below other Biotechs companies. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Fate Therapeutics' analyst forecasts revealed that its outlook for shrinking revenue 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.

It is also worth noting that we have found 4 warning signs for Fate Therapeutics (1 is potentially serious!) that you need to take into consideration.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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