Improved Revenues Required Before Agenus Inc. (NASDAQ:AGEN) Shares Find Their Feet

Agenus Inc.'s (NASDAQ:AGEN) price-to-sales (or "P/S") ratio of 2.9x 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 11.3x and even P/S above 48x 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.

See our latest analysis for Agenus

What Does Agenus' P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Agenus has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Agenus.

Do Revenue Forecasts Match The Low P/S Ratio?

Agenus' P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Retrospectively, the last year delivered a decent 12% gain to the company's revenues. Revenue has also lifted 10% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 28% each year as estimated by the five analysts watching the company. That's shaping up to be materially lower than the 235% per annum growth forecast for the broader industry.

With this information, we can see why Agenus is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Agenus' 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.

We've established that Agenus maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 5 warning signs with Agenus (at least 1 which is significant), and understanding them should be part of your investment process.

If you're unsure about the strength of Agenus' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.