Investors Don't See Light At End Of Seres Therapeutics, Inc.'s (NASDAQ:MCRB) Tunnel
Seres Therapeutics, Inc.'s (NASDAQ:MCRB) price-to-sales (or "P/S") ratio of 4.2x might make it look like a strong buy right now compared to the Biotechs industry in the United States, where around half of the companies have P/S ratios above 11.4x and even P/S above 57x 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.
Check out our latest analysis for Seres Therapeutics
What Does Seres Therapeutics' Recent Performance Look Like?
While the industry has experienced revenue growth lately, Seres 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.
Want the full picture on analyst estimates for the company? Then our free report on Seres Therapeutics will help you uncover what's on the horizon.
Is There Any Revenue Growth Forecasted For Seres Therapeutics?
In order to justify its P/S ratio, Seres Therapeutics would need to produce anemic growth that's substantially trailing the industry.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 4.6%. The latest three year period has seen an incredible overall rise in revenue, a stark contrast to the last 12 months. So while the company has done a great job in the past, it's somewhat concerning to see revenue growth decline so harshly.
Looking ahead now, revenue is anticipated to slump, contracting by 20% per year during the coming three years according to the seven analysts following the company. Meanwhile, the broader industry is forecast to expand by 83% each year, which paints a poor picture.
In light of this, it's understandable that Seres Therapeutics' P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.
The Final Word
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.
With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Seres Therapeutics' P/S is on the lower end of the spectrum. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.
You always need to take note of risks, for example - Seres Therapeutics has 3 warning signs we think you should be aware of.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
