Arbutus Biopharma Corporation (NASDAQ:ABUS) Stock Rockets 26% As Investors Are Less Pessimistic Than Expected

Despite an already strong run, Arbutus Biopharma Corporation (NASDAQ:ABUS) shares have been powering on, with a gain of 26% in the last thirty days. Looking further back, the 15% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Since its price has surged higher, Arbutus Biopharma may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 19.5x, when you consider almost half of the companies in the Biotechs industry in the United States have P/S ratios under 12.7x and even P/S lower than 4x aren't out of the ordinary. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Arbutus Biopharma

What Does Arbutus Biopharma's Recent Performance Look Like?

Arbutus Biopharma could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Arbutus Biopharma will help you uncover what's on the horizon.

How Is Arbutus Biopharma's Revenue Growth Trending?

Arbutus Biopharma's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 38%. Still, the latest three year period has seen an excellent 262% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to slump, contracting by 22% per annum during the coming three years according to the five analysts following the company. Meanwhile, the broader industry is forecast to expand by 243% per year, which paints a poor picture.

In light of this, it's alarming that Arbutus Biopharma's P/S sits above the majority of other companies. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

What We Can Learn From Arbutus Biopharma's P/S?

Shares in Arbutus Biopharma have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

For a company with revenues that are set to decline in the context of a growing industry, Arbutus Biopharma's P/S is much higher than we would've anticipated. In cases like this where we see revenue decline on the horizon, we suspect the share price is at risk of following suit, bringing back the high P/S into the realms of suitability. At these price levels, investors should remain cautious, particularly if things don't improve.

Before you take the next step, you should know about the 2 warning signs for Arbutus Biopharma that we have uncovered.

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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