CytomX Therapeutics, Inc.'s (NASDAQ:CTMX) Price Is Right But Growth Is Lacking After Shares Rocket 85%

CytomX Therapeutics, Inc. (NASDAQ:CTMX) shareholders have had their patience rewarded with a 85% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 26%.

Although its price has surged higher, CytomX Therapeutics may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.9x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 15.7x and even P/S higher than 76x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

Check out our latest analysis for CytomX Therapeutics

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

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

Is There Any Revenue Growth Forecasted For CytomX Therapeutics?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like CytomX Therapeutics' to be considered reasonable.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. In spite of this unbelievable short-term growth, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 17% each year as estimated by the five analysts watching the company. That's not great when the rest of the industry is expected to grow by 265% each year.

With this information, we are not surprised that CytomX Therapeutics is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

Shares in CytomX Therapeutics have risen appreciably however, its P/S is still subdued. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that CytomX Therapeutics' P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, CytomX Therapeutics' poor outlook justifies its low P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with CytomX Therapeutics (at least 2 which shouldn't be ignored), and understanding them should be part of your investment process.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.