The Adaptimmune Therapeutics plc (NASDAQ:ADAP) share price has softened a substantial 30% over the previous 30 days, handing back much of the gains the stock has made lately. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 22% in that time.
Since its price has dipped substantially, Adaptimmune Therapeutics' price-to-sales (or "P/S") ratio of 4.5x 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 12.5x and even P/S above 61x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.
NasdaqGS:ADAP Price to Sales Ratio vs Industry April 26th 2024
How Has Adaptimmune Therapeutics Performed Recently?
Recent times haven't been great for Adaptimmune Therapeutics as its revenue has been rising slower than most other companies. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
Want the full picture on analyst estimates for the company? Then our free report on Adaptimmune Therapeutics will help you uncover what's on the horizon.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
There's an inherent assumption that a company should far underperform the industry for P/S ratios like Adaptimmune Therapeutics' to be considered reasonable.
Taking a look back first, we see that the company grew revenue by an impressive 122% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Looking ahead now, revenue is anticipated to climb by 4.7% each year during the coming three years according to the five analysts following the company. With the industry predicted to deliver 159% growth each year, the company is positioned for a weaker revenue result.
In light of this, it's understandable that Adaptimmune Therapeutics' P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
The Final Word
Adaptimmune Therapeutics' P/S looks about as weak as its stock price lately. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
As we suspected, our examination of Adaptimmune Therapeutics' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.
We don't want to rain on the parade too much, but we did also find 5 warning signs for Adaptimmune Therapeutics (3 are a bit unpleasant!) that you need to be mindful of.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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