Immatics N.V.'s (NASDAQ:IMTX) Price Is Out Of Tune With Revenues

Immatics N.V.'s (NASDAQ:IMTX) price-to-sales (or "P/S") ratio of 15.7x might make it look like a sell right now compared to the Biotechs industry in the United States, where around half of the companies have P/S ratios below 12x and even P/S below 5x are quite common. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Immatics

What Does Immatics' P/S Mean For Shareholders?

Immatics could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Immatics will help you uncover what's on the horizon.

How Is Immatics' Revenue Growth Trending?

In order to justify its P/S ratio, Immatics would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a frustrating 16% decrease to the company's top line. Even so, admirably revenue has lifted 137% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Shifting to the future, estimates from the six analysts covering the company suggest revenue growth is heading into negative territory, declining 4.4% per annum over the next three years. With the industry predicted to deliver 146% growth per year, that's a disappointing outcome.

With this information, we find it concerning that Immatics is trading at a P/S higher than the industry. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh heavily on the share price eventually.

The Bottom Line On Immatics' P/S

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.

For a company with revenues that are set to decline in the context of a growing industry, Immatics' P/S is much higher than we would've anticipated. In cases like this where we see revenue decline on the horizon, we suspect the share price is at risk of following suit, bringing back the high P/S into the realms of suitability. At these price levels, investors should remain cautious, particularly if things don't improve.

Having said that, be aware Immatics is showing 3 warning signs in our investment analysis, and 1 of those is potentially serious.

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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.