MacroGenics, Inc. (NASDAQ:MGNX) shareholders that were waiting for something to happen have been dealt a blow with a 82% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 50% in that time.

Since its price has dipped substantially, MacroGenics' price-to-sales (or "P/S") ratio of 4.8x 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 66x 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.

What Does MacroGenics' P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, MacroGenics' revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. 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.

Is There Any Revenue Growth Forecasted For MacroGenics?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like MacroGenics' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 74% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 60% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 36% each year during the coming three years according to the seven analysts following the company. With the industry predicted to deliver 210% growth each year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that MacroGenics' 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.

What Does MacroGenics' P/S Mean For Investors?

Having almost fallen off a cliff, MacroGenics' share price has pulled its P/S way down as well. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of MacroGenics' 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 3 warning signs for MacroGenics (2 are a bit unpleasant!) that you should be aware 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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