Caribou Biosciences, Inc.'s (NASDAQ:CRBU) 28% Price Boost Is Out Of Tune With Revenues

Caribou Biosciences, Inc. (NASDAQ:CRBU) shareholders are no doubt pleased to see that the share price has bounced 28% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 43% over that time.

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 13.3x, when you consider almost half of the companies in the Biotechs industry in the United States have P/S ratios under 10.4x and even P/S lower than 3x aren't out of the ordinary. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Caribou Biosciences

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

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. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

What Are Revenue Growth Metrics Telling Us About The High P/S?

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

If we review the last year of revenue growth, the company posted a terrific increase of 172%. 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.

Shifting to the future, estimates from the nine analysts covering the company suggest revenue should grow by 1.7% per annum over the next three years. With the industry predicted to deliver 192% growth per year, the company is positioned for a weaker revenue result.

With this in consideration, we believe it doesn't make sense that Caribou Biosciences' P/S is outpacing its industry peers. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

What We Can Learn From Caribou Biosciences' P/S?

Caribou Biosciences shares have taken a big step in a northerly direction, but its P/S is elevated as a result. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've concluded that Caribou Biosciences currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. At these price levels, investors should remain cautious, particularly if things don't improve.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Caribou Biosciences (of which 1 can't be ignored!) you should know about.

If these risks are making you reconsider your opinion on Caribou Biosciences, 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.