Silence Therapeutics plc's (NASDAQ:SLN) Price Is Right But Growth Is Lacking After Shares Rocket 50%

Those holding Silence Therapeutics plc (NASDAQ:SLN) shares would be relieved that the share price has rebounded 50% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the last month did very little to improve the 82% share price decline over the last year.

In spite of the firm bounce in price, Silence Therapeutics may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 4.3x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 8.9x and even P/S higher than 49x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

We've discovered 1 warning sign about Silence Therapeutics. View them for free.

See our latest analysis for Silence Therapeutics

How Has Silence Therapeutics Performed Recently?

Silence Therapeutics could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Silence Therapeutics' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 37%. Pleasingly, revenue has also lifted 158% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has 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 62% per year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 158% per year, which is noticeably more attractive.

In light of this, it's understandable that Silence Therapeutics' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Silence Therapeutics' recent share price jump still sees fails to bring its P/S alongside the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Silence Therapeutics' analyst forecasts revealed that its inferior revenue outlook is contributing 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.

Plus, you should also learn about this 1 warning sign we've spotted with Silence Therapeutics.

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.