What Sangamo Therapeutics, Inc.'s (NASDAQ:SGMO) 26% Share Price Gain Is Not Telling You

Sangamo Therapeutics, Inc. (NASDAQ:SGMO) shares have continued their recent momentum with a 26% gain in the last month alone. The last month tops off a massive increase of 149% in the last year.

Following the firm bounce in price, Sangamo Therapeutics may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 20.5x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios under 12.9x and even P/S lower than 4x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Sangamo Therapeutics

What Does Sangamo Therapeutics' Recent Performance Look Like?

While the industry has experienced revenue growth lately, Sangamo Therapeutics' revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

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

How Is Sangamo Therapeutics' Revenue Growth Trending?

Sangamo Therapeutics' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered a frustrating 94% decrease to the company's top line. As a result, revenue from three years ago have also fallen 91% overall. 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 seven analysts covering the company suggest revenue should grow by 114% per year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 147% per annum, which is noticeably more attractive.

With this information, we find it concerning that Sangamo Therapeutics is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Final Word

Shares in Sangamo Therapeutics have seen a strong upwards swing lately, which has really helped boost its P/S figure. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Sangamo Therapeutics, this doesn't appear to be impacting the P/S in the slightest. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. At these price levels, investors should remain cautious, particularly if things don't improve.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Sangamo Therapeutics (of which 2 are a bit concerning!) you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.