Atara Biotherapeutics, Inc.'s (NASDAQ:ATRA) Share Price Boosted 25% But Its Business Prospects Need A Lift Too

Atara Biotherapeutics, Inc. (NASDAQ:ATRA) shares have continued their recent momentum with a 25% gain in the last month alone. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 26% in the last twelve months.

Although its price has surged higher, 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 10.2x and even P/S higher than 62x 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. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For Atara Biotherapeutics?

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.

Retrospectively, the last year delivered an explosive gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 7.3% per annum during the coming three years according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 109% per annum, which is noticeably more attractive.

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 Final Word

Even after such a strong price move, Atara Biotherapeutics' P/S still trails the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Atara Biotherapeutics' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 6 warning signs for Atara Biotherapeutics (2 shouldn't be ignored) you should be aware of.

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.