Caribou Biosciences, Inc.'s (NASDAQ:CRBU) 25% Share Price Surge Not Quite Adding Up

Despite an already strong run, Caribou Biosciences, Inc. (NASDAQ:CRBU) shares have been powering on, with a gain of 25% in the last thirty days. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Since its price has surged higher, Caribou Biosciences may be sending sell signals at present with a price-to-sales (or "P/S") ratio of 17.4x, when you consider almost half of the companies in the Biotechs industry in the United States have P/S ratios under 13.9x and even P/S lower than 4x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for Caribou Biosciences

How Has Caribou Biosciences Performed Recently?

Caribou Biosciences certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For Caribou Biosciences?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Caribou Biosciences' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 172% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 180% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 2.8% per year as estimated by the nine analysts watching the company. With the industry predicted to deliver 250% growth per year, that's a disappointing outcome.

With this information, we find it concerning that Caribou Biosciences is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

What Does Caribou Biosciences' P/S Mean For Investors?

The large bounce in Caribou Biosciences' shares has lifted the company's P/S handsomely. 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.

Our examination of Caribou Biosciences' analyst forecasts revealed that its shrinking revenue outlook isn't drawing down its high P/S anywhere near as much as we would have predicted. In cases like this where we see revenue decline on the horizon, we suspect the share price is at risk of following suit, bringing back the high P/S into the realms of suitability. At these price levels, investors should remain cautious, particularly if things don't improve.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Caribou Biosciences (1 doesn't sit too well with us!) that you should be aware of before investing here.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.