CytomX Therapeutics, Inc. (NASDAQ:CTMX) Soars 66% But It's A Story Of Risk Vs Reward

CytomX Therapeutics, Inc. (NASDAQ:CTMX) shareholders would be excited to see that the share price has had a great month, posting a 66% gain and recovering from prior weakness. The last month tops off a massive increase of 171% in the last year.

Although its price has surged higher, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may still consider CytomX Therapeutics as an attractive investment with its 11x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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CytomX Therapeutics certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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Is There Any Growth For CytomX Therapeutics?

CytomX Therapeutics' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 268% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

The Final Word

Despite CytomX Therapeutics' shares building up a head of steam, its P/E still lags most other companies. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

It is also worth noting that we have found 3 warning signs for CytomX Therapeutics (2 are significant!) 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.