The Market Doesn't Like What It Sees From Alector, Inc.'s (NASDAQ:ALEC) Revenues Yet As Shares Tumble 53%

Unfortunately for some shareholders, the Alector, Inc. (NASDAQ:ALEC) share price has dived 53% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 77% share price decline.

After such a large drop in price, Alector may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 3x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 9.9x and even P/S higher than 61x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

Check out our latest analysis for Alector

What Does Alector's Recent Performance Look Like?

Alector hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Keen to find out how analysts think Alector's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as depressed as Alector's is when the company's growth is on track to lag the industry decidedly.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 36%. As a result, revenue from three years ago have also fallen 69% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 0.006% per year during the coming three years according to the nine analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 115% per annum, which is noticeably more attractive.

With this in consideration, its clear as to why Alector's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Shares in Alector have plummeted and its P/S has followed suit. 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 we suspected, our examination of Alector's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. 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 4 warning signs with Alector, and understanding these should be part of your investment process.

If you're unsure about the strength of Alector's 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.