C4 Therapeutics, Inc. (NASDAQ:CCCC) Surges 27% Yet Its Low P/S Is No Reason For Excitement

C4 Therapeutics, Inc. (NASDAQ:CCCC) shares have continued their recent momentum with a 27% gain in the last month alone. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 61% share price drop in the last twelve months.

In spite of the firm bounce in price, C4 Therapeutics' price-to-sales (or "P/S") ratio of 3.6x 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 8.7x and even P/S above 59x 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.

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See our latest analysis for C4 Therapeutics

How C4 Therapeutics Has Been Performing

With revenue growth that's inferior to most other companies of late, C4 Therapeutics has been relatively sluggish. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Keen to find out how analysts think C4 Therapeutics' future stacks up against the industry? In that case, our free report is a great place to start.

How Is C4 Therapeutics' Revenue Growth Trending?

C4 Therapeutics' 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.

Retrospectively, the last year delivered an exceptional 99% gain to the company's top line. Still, revenue has fallen 14% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 16% per year during the coming three years according to the five analysts following the company. With the industry predicted to deliver 105% growth per annum, the company is positioned for a weaker revenue result.

In light of this, it's understandable that C4 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 Final Word

Even after such a strong price move, C4 Therapeutics' P/S still trails the rest of the industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As expected, our analysis of C4 Therapeutics' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. 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.

And what about other risks? Every company has them, and we've spotted 2 warning signs for C4 Therapeutics you should know about.

If these risks are making you reconsider your opinion on C4 Therapeutics, 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.