Atara Biotherapeutics, Inc. (NASDAQ:ATRA) Shares Fly 30% But Investors Aren't Buying For Growth

Atara Biotherapeutics, Inc. (NASDAQ:ATRA) shareholders are no doubt pleased to see that the share price has bounced 30% in the last month, although it is still struggling to make up recently lost ground. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 54% share price drop in the last twelve months.

Even after such a large jump in price, Atara Biotherapeutics' price-to-sales (or "P/S") ratio of 0.3x might still make it look like a strong buy right now compared to the wider Biotechs industry in the United States, where around half of the companies have P/S ratios above 8.9x and even P/S above 49x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

We've discovered 5 warning signs about Atara Biotherapeutics. View them for free.

See our latest analysis for Atara Biotherapeutics

How Atara Biotherapeutics Has Been Performing

With revenue growth that's superior to most other companies of late, Atara Biotherapeutics has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

How Is Atara Biotherapeutics' Revenue Growth Trending?

Atara Biotherapeutics' 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.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. The amazing performance means it was also able to deliver huge revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 43% per year as estimated by the four analysts watching the company. Meanwhile, the broader industry is forecast to expand by 158% per year, which paints a poor picture.

In light of this, it's understandable that Atara Biotherapeutics' P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On Atara Biotherapeutics' P/S

Atara Biotherapeutics' recent share price jump still sees fails to bring its P/S alongside the industry median. 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.

It's clear to see that Atara Biotherapeutics maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. 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.

You should always think about risks. Case in point, we've spotted 5 warning signs for Atara Biotherapeutics you should be aware of, and 2 of them are significant.

If these risks are making you reconsider your opinion on Atara Biotherapeutics, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.