There's Reason For Concern Over Sangamo Therapeutics, Inc.'s (NASDAQ:SGMO) Massive 171% Price Jump

Sangamo Therapeutics, Inc. (NASDAQ:SGMO) shareholders would be excited to see that the share price has had a great month, posting a 171% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 26% in the last twelve months.

Although its price has surged higher, it's still not a stretch to say that Sangamo Therapeutics' price-to-sales (or "P/S") ratio of 9.6x 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 11.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Sangamo Therapeutics

What Does Sangamo Therapeutics' Recent Performance Look Like?

Sangamo Therapeutics could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Want the full picture on analyst estimates for the company? Then our free report on Sangamo Therapeutics will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For Sangamo Therapeutics?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 92%. The last three years don't look nice either as the company has shrunk revenue by 86% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 87% per year as estimated by the six analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 183% each year, which is noticeably more attractive.

In light of this, it's curious that Sangamo Therapeutics' P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

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

Sangamo Therapeutics' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Given that Sangamo Therapeutics' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Sangamo Therapeutics (1 makes us a bit uncomfortable) you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.

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