Sutro Biopharma, Inc.'s (NASDAQ:STRO) Share Price Boosted 48% But Its Business Prospects Need A Lift Too
Sutro Biopharma, Inc. (NASDAQ:STRO) shares have had a really impressive month, gaining 48% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 46% over that time.
Although its price has surged higher, Sutro Biopharma may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 5x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 11.6x and even P/S higher than 49x 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 Sutro Biopharma
How Has Sutro Biopharma Performed Recently?
While the industry has experienced revenue growth lately, Sutro Biopharma's 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.
Want the full picture on analyst estimates for the company? Then our free report on Sutro Biopharma will help you uncover what's on the horizon.
How Is Sutro Biopharma's Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as depressed as Sutro Biopharma's is when the company's growth is on track to lag the industry decidedly.
Retrospectively, the last year delivered a frustrating 30% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 6.3% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.
Turning to the outlook, the next three years should generate growth of 29% per year as estimated by the ten analysts watching the company. That's shaping up to be materially lower than the 221% per year growth forecast for the broader industry.
In light of this, it's understandable that Sutro Biopharma's 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 Key Takeaway
Shares in Sutro Biopharma have risen appreciably however, its P/S is still subdued. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
As expected, our analysis of Sutro Biopharma's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor 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. 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 Sutro Biopharma that 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.
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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.
