Mersana Therapeutics, Inc.'s (NASDAQ:MRSN) Shares Bounce 26% But Its Business Still Trails The Industry

Mersana Therapeutics, Inc. (NASDAQ:MRSN) shares have continued their recent momentum with a 26% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 33% over that time.

Although its price has surged higher, Mersana Therapeutics may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 12x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 15.4x and even P/S higher than 71x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Mersana Therapeutics

How Has Mersana Therapeutics Performed Recently?

There hasn't been much to differentiate Mersana Therapeutics' and the industry's revenue growth lately. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. Those who are bullish on Mersana Therapeutics will be hoping that this isn't the case.

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

How Is Mersana Therapeutics' Revenue Growth Trending?

Mersana Therapeutics' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 243% last year. This great performance means it was also able to deliver immense revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue growth is heading into negative territory, declining 19% per annum over the next three years. Meanwhile, the broader industry is forecast to expand by 296% per year, which paints a poor picture.

In light of this, it's understandable that Mersana Therapeutics' P/S would sit below the majority of other companies. 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 Bottom Line On Mersana Therapeutics' P/S

Despite Mersana Therapeutics' share price climbing recently, its P/S still lags most other companies. 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.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Mersana Therapeutics' P/S is on the lower end of the spectrum. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 3 warning signs we've spotted with Mersana Therapeutics.

If these risks are making you reconsider your opinion on Mersana 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.