CytomX Therapeutics, Inc. (NASDAQ:CTMX) Not Doing Enough For Some Investors As Its Shares Slump 27%

CytomX Therapeutics, Inc. (NASDAQ:CTMX) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. The recent drop has obliterated the annual return, with the share price now down 2.5% over that longer period.

Since its price has dipped substantially, CytomX Therapeutics' price-to-sales (or "P/S") ratio of 1.1x might 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 13x and even P/S above 59x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for CytomX Therapeutics

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

Recent times haven't been great for CytomX Therapeutics as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered an exceptional 90% gain to the company's top line. Pleasingly, revenue has also lifted 48% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 23% per annum as estimated by the six analysts watching the company. That's not great when the rest of the industry is expected to grow by 163% each year.

With this in consideration, we find it intriguing that CytomX Therapeutics' P/S is closely matching its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On CytomX Therapeutics' P/S

Shares in CytomX Therapeutics have plummeted and its P/S has followed suit. 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.

As we suspected, our examination of CytomX Therapeutics' analyst forecasts revealed that its outlook for shrinking revenue is contributing 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. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

It is also worth noting that we have found 6 warning signs for CytomX Therapeutics (2 are a bit concerning!) that you need to take into consideration.

If you're unsure about the strength of CytomX Therapeutics' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.