Little Excitement Around Editas Medicine, Inc.'s (NASDAQ:EDIT) Revenues As Shares Take 34% Pounding

The Editas Medicine, Inc. (NASDAQ:EDIT) share price has fared very poorly over the last month, falling by a substantial 34%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 76% loss during that time.

After such a large drop in price, Editas Medicine's price-to-sales (or "P/S") ratio of 3.3x 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 10.3x and even P/S above 60x are quite common. 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.

See our latest analysis for Editas Medicine

What Does Editas Medicine's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Editas Medicine 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 this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Editas Medicine.

Do Revenue Forecasts Match The Low P/S Ratio?

Editas Medicine's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 151% last year. Pleasingly, revenue has also lifted 152% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 7.2% per annum as estimated by the analysts watching the company. With the industry predicted to deliver 118% growth per annum, that's a disappointing outcome.

With this in consideration, we find it intriguing that Editas Medicine's 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. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What Does Editas Medicine's P/S Mean For Investors?

Editas Medicine's P/S looks about as weak as its stock price lately. 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.

It's clear to see that Editas Medicine maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. As other companies in the industry are forecasting revenue growth, Editas Medicine's 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.

You should always think about risks. Case in point, we've spotted 2 warning signs for Editas Medicine you should be aware of, and 1 of them doesn't sit too well with us.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.