The Market Doesn't Like What It Sees From Carisma Therapeutics, Inc.'s (NASDAQ:CARM) Revenues Yet As Shares Tumble 27%

To the annoyance of some shareholders, Carisma Therapeutics, Inc. (NASDAQ:CARM) shares are down a considerable 27% in the last month, which continues a horrid run for the company. To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.

After such a large drop in price, Carisma Therapeutics may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 6.7x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 10.9x and even P/S higher than 48x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Carisma Therapeutics

What Does Carisma Therapeutics' P/S Mean For Shareholders?

Recent times have been advantageous for Carisma Therapeutics as its revenues have been rising faster 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Carisma Therapeutics will help you uncover what's on the horizon.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Carisma Therapeutics' to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 135% last year. Although, its longer-term performance hasn't been as strong with three-year revenue growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 26% each year as estimated by the five analysts watching the company. With the industry predicted to deliver 221% growth per annum, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Carisma Therapeutics' P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Carisma Therapeutics' P/S

Carisma Therapeutics' P/S has taken a dip along with its share price. 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 Carisma Therapeutics maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. 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 3 warning signs we've spotted with Carisma Therapeutics.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.