MacroGenics, Inc.'s (NASDAQ:MGNX) Share Price Is Matching Sentiment Around Its Revenues
With a price-to-sales (or "P/S") ratio of 2.9x MacroGenics, Inc. (NASDAQ:MGNX) may be sending very bullish signals at the moment, given that almost half of all the Biotechs companies in the United States have P/S ratios greater than 11.5x and even P/S higher than 53x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.
See our latest analysis for MacroGenics
What Does MacroGenics' Recent Performance Look Like?
Recent times have been advantageous for MacroGenics as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Keen to find out how analysts think MacroGenics' future stacks up against the industry? In that case, our free report is a great place to start.
How Is MacroGenics' Revenue Growth Trending?
There's an inherent assumption that a company should far underperform the industry for P/S ratios like MacroGenics' to be considered reasonable.
Taking a look back first, we see that the company grew revenue by an impressive 96% last year. The strong recent performance means it was also able to grow revenue by 137% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Shifting to the future, estimates from the nine analysts covering the company suggest revenue should grow by 2.4% per annum over the next three years. That's shaping up to be materially lower than the 104% each year growth forecast for the broader industry.
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 We Can Learn From MacroGenics' P/S?
Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
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.
Don't forget that there may be other risks. For instance, we've identified 3 warning signs for MacroGenics (1 is a bit concerning) you should be aware of.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.
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