CytomX Therapeutics, Inc. (NASDAQ:CTMX) Looks Inexpensive After Falling 26% But Perhaps Not Attractive Enough

CytomX Therapeutics, Inc. (NASDAQ:CTMX) shares have had a horrible month, losing 26% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 42% in that time.

After such a large drop in price, CytomX Therapeutics may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.5x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 10.7x and even P/S higher than 60x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for CytomX Therapeutics

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

With revenue growth that's inferior to most other companies of late, CytomX Therapeutics has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. 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 CytomX Therapeutics' future stacks up against the industry? In that case, our free report is a great place to start.

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

In order to justify its P/S ratio, CytomX Therapeutics would need to produce anemic growth that's substantially trailing the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 34%. The strong recent performance means it was also able to grow revenue by 91% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the six analysts covering the company suggest revenue growth is heading into negative territory, declining 30% per year over the next three years. Meanwhile, the broader industry is forecast to expand by 127% each year, which paints a poor picture.

With this information, we are not surprised that CytomX Therapeutics is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

CytomX Therapeutics' P/S looks about as weak as its stock price lately. 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.

As we suspected, our examination of CytomX Therapeutics' analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. As other companies in the industry are forecasting revenue growth, CytomX Therapeutics' poor outlook justifies its low P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 4 warning signs for CytomX Therapeutics (2 can't be ignored!) that you need to be mindful of.

If these risks are making you reconsider your opinion on CytomX 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.