Investors Don't See Light At End Of Sangamo Therapeutics, Inc.'s (NASDAQ:SGMO) Tunnel And Push Stock Down 30%

Sangamo Therapeutics, Inc. (NASDAQ:SGMO) shares have retraced a considerable 30% in the last month, reversing a fair amount of their solid recent performance. Regardless, last month's decline is barely a blip on the stock's price chart as it has gained a monstrous 314% in the last year.

After such a large drop in price, Sangamo Therapeutics may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 8x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 10.9x and even P/S higher than 58x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Sangamo Therapeutics

What Does Sangamo Therapeutics' P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Sangamo Therapeutics' 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. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

What Are Revenue Growth Metrics Telling Us About The Low P/S?

The only time you'd be truly comfortable seeing a P/S as low as Sangamo Therapeutics' is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 74% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 52% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 43% each year as estimated by the seven analysts watching the company. With the industry predicted to deliver 118% growth per annum, the company is positioned for a weaker revenue result.

With this information, we can see why Sangamo Therapeutics is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Sangamo Therapeutics' P/S?

Sangamo Therapeutics' recently weak share price has pulled its P/S back below other Biotechs companies. 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.

As expected, our analysis of Sangamo Therapeutics' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

Having said that, be aware Sangamo Therapeutics is showing 4 warning signs in our investment analysis, and 1 of those is significant.

If you're unsure about the strength of Sangamo Therapeutics' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.