Werewolf Therapeutics, Inc.'s (NASDAQ:HOWL) Share Price Boosted 27% But Its Business Prospects Need A Lift Too

Werewolf Therapeutics, Inc. (NASDAQ:HOWL) shares have continued their recent momentum with a 27% gain in the last month alone. The annual gain comes to 107% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, Werewolf Therapeutics may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 9.1x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 13.7x and even P/S higher than 58x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Werewolf Therapeutics

What Does Werewolf Therapeutics' Recent Performance Look Like?

Werewolf Therapeutics certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. 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 Werewolf Therapeutics.

How Is Werewolf Therapeutics' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Werewolf Therapeutics' is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 182%. Although, its longer-term performance hasn't been as strong with three-year revenue growth being relatively non-existent overall. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 13% each year during the coming three years according to the four analysts following the company. Meanwhile, the broader industry is forecast to expand by 225% per annum, which paints a poor picture.

With this information, we are not surprised that Werewolf 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 Bottom Line On Werewolf Therapeutics' P/S

Werewolf Therapeutics' stock price has surged recently, but its but its P/S still remains modest. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Werewolf Therapeutics' P/S is on the lower end of the spectrum. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. 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 4 warning signs for Werewolf Therapeutics you should be aware of, and 1 of them can't be ignored.

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.