There's No Escaping Molecular Templates, Inc.'s (NASDAQ:MTEM) Muted Revenues Despite A 45% Share Price Rise

Molecular Templates, Inc. (NASDAQ:MTEM) shares have had a really impressive month, gaining 45% after a shaky period beforehand. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 79% share price drop in the last twelve months.

In spite of the firm bounce in price, Molecular Templates may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.3x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 11.5x and even P/S higher than 50x 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 so limited.

See our latest analysis for Molecular Templates

What Does Molecular Templates' Recent Performance Look Like?

While the industry has experienced revenue growth lately, Molecular Templates' revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Molecular Templates' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 49% decrease to the company's top line. As a result, revenue from three years ago have also fallen 11% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 31% per year during the coming three years according to the three analysts following the company. That's not great when the rest of the industry is expected to grow by 92% per annum.

In light of this, it's understandable that Molecular Templates' 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.

What Does Molecular Templates' P/S Mean For Investors?

Molecular Templates' recent share price jump still sees fails to bring its P/S alongside the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

It's clear to see that Molecular Templates maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

And what about other risks? Every company has them, and we've spotted 5 warning signs for Molecular Templates (of which 1 is concerning!) you should know about.

If these risks are making you reconsider your opinion on Molecular Templates, 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.