Revenues Not Telling The Story For Immatics N.V. (NASDAQ:IMTX) After Shares Rise 28%

Immatics N.V. (NASDAQ:IMTX) shares have continued their recent momentum with a 28% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 55%.

Since its price has surged higher, Immatics may be sending bearish signals at the moment with its price-to-sales (or "P/S") ratio of 14.6x, since almost half of all companies in the Biotechs in the United States have P/S ratios under 12.1x and even P/S lower than 4x 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 as high as it is.

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See our latest analysis for Immatics

What Does Immatics' P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Immatics' revenue has gone into reverse gear, which is not great. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Immatics' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Immatics' Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Immatics' to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 27%. This means it has also seen a slide in revenue over the longer-term as revenue is down 44% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the nine analysts covering the company suggest revenue should grow by 8.4% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 128% per year, which is noticeably more attractive.

With this in consideration, we believe it doesn't make sense that Immatics' P/S is outpacing its industry peers. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Immatics' P/S?

Immatics' P/S is on the rise since its shares have risen strongly. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've concluded that Immatics currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Immatics, and understanding them should be part of your investment process.

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.