Atara Biotherapeutics, Inc. (NASDAQ:ATRA) Surges 34% Yet Its Low P/S Is No Reason For Excitement

Those holding Atara Biotherapeutics, Inc. (NASDAQ:ATRA) shares would be relieved that the share price has rebounded 34% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the last month did very little to improve the 74% share price decline over the last year.

In spite of the firm bounce in price, Atara Biotherapeutics may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.8x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 11.7x and even P/S higher than 77x are not unusual. 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 Atara Biotherapeutics

What Does Atara Biotherapeutics' P/S Mean For Shareholders?

Atara Biotherapeutics certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If you 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 Atara Biotherapeutics will help you uncover what's on the horizon.

How Is Atara Biotherapeutics' Revenue Growth Trending?

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

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. 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 generate growth of 31% per annum as estimated by the six analysts watching the company. That's shaping up to be materially lower than the 139% per annum growth forecast for the broader industry.

With this in consideration, its clear as to why Atara Biotherapeutics' 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 Key Takeaway

Shares in Atara Biotherapeutics have risen appreciably however, its P/S is still subdued. 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.

We've established that Atara Biotherapeutics 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.

Plus, you should also learn about these 6 warning signs we've spotted with Atara Biotherapeutics (including 2 which are potentially serious).

If you're unsure about the strength of Atara Biotherapeutics' 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.