Risks Still Elevated At These Prices As Cartesian Therapeutics, Inc. (NASDAQ:RNAC) Shares Dive 33%

Cartesian Therapeutics, Inc. (NASDAQ:RNAC) shares have had a horrible month, losing 33% after a relatively good period beforehand. Longer-term shareholders would now have taken a real hit with the stock declining 9.9% in the last year.

Although its price has dipped substantially, it's still not a stretch to say that Cartesian Therapeutics' price-to-sales (or "P/S") ratio of 9x right now seems quite "middle-of-the-road" compared to the Biotechs industry in the United States, where the median P/S ratio is around 11x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Cartesian Therapeutics

What Does Cartesian Therapeutics' Recent Performance Look Like?

Cartesian Therapeutics hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Cartesian Therapeutics.

How Is Cartesian Therapeutics' Revenue Growth Trending?

In order to justify its P/S ratio, Cartesian Therapeutics would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 62% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 44% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue growth is heading into negative territory, declining 51% per year over the next three years. With the industry predicted to deliver 116% growth per annum, that's a disappointing outcome.

With this information, we find it concerning that Cartesian Therapeutics is trading at a fairly similar P/S compared to the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. 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 negative growth outlook.

The Key Takeaway

With its share price dropping off a cliff, the P/S for Cartesian Therapeutics looks to be in line with the rest of the Biotechs industry. 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 appears that Cartesian Therapeutics currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If the poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.

You need to take note of risks, for example - Cartesian Therapeutics has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.