Silence Therapeutics plc (NASDAQ:SLN) May Have Run Too Fast Too Soon With Recent 54% Price Plummet

Silence Therapeutics plc (NASDAQ:SLN) shareholders that were waiting for something to happen have been dealt a blow with a 54% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 46% in that time.

Even after such a large drop in price, Silence Therapeutics may still be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 18.2x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios under 10.9x and even P/S lower than 4x are not unusual. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Silence Therapeutics

What Does Silence Therapeutics' Recent Performance Look Like?

Silence 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 the poor revenue to reverse, justifying it's current high P/S.. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Silence Therapeutics' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Silence Therapeutics' is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered a frustrating 42% decrease to the company's top line. Even so, admirably revenue has lifted 43% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 25% per year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 118% each year, which is noticeably more attractive.

With this information, we find it concerning that Silence Therapeutics is trading at a P/S higher than 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 growth outlook.

The Final Word

A significant share price dive has done very little to deflate Silence Therapeutics' very lofty P/S. 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.

It comes as a surprise to see Silence Therapeutics trade at such a high P/S given the revenue forecasts look less than stellar. 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. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you take the next step, you should know about the 4 warning signs for Silence Therapeutics (1 doesn't sit too well with us!) that we have uncovered.

If these risks are making you reconsider your opinion on Silence Therapeutics, 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.