Monte Rosa Therapeutics, Inc. (NASDAQ:GLUE) Held Back By Insufficient Growth Even After Shares Climb 58%

Monte Rosa Therapeutics, Inc. (NASDAQ:GLUE) shareholders have had their patience rewarded with a 58% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 82%.

In spite of the firm bounce in price, Monte Rosa Therapeutics may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 3.5x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 11.3x and even P/S higher than 91x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

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See our latest analysis for Monte Rosa Therapeutics

What Does Monte Rosa Therapeutics' Recent Performance Look Like?

Monte Rosa 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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

Is There Any Revenue Growth Forecasted For Monte Rosa Therapeutics?

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

If we review the last year of revenue growth, we see the company's revenues grew exponentially. Still, revenue has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue growth is heading into negative territory, declining 32% per year over the next three years. That's not great when the rest of the industry is expected to grow by 129% per annum.

With this information, we are not surprised that Monte Rosa 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 Final Word

Shares in Monte Rosa Therapeutics have risen appreciably however, its P/S is still subdued. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Monte Rosa 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, Monte Rosa 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.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Monte Rosa Therapeutics (1 is concerning!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on Monte Rosa 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.