Subdued Growth No Barrier To Silence Therapeutics plc (NASDAQ:SLN) With Shares Advancing 65%

Silence Therapeutics plc (NASDAQ:SLN) shares have had a really impressive month, gaining 65% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 24% in the last twelve months.

In spite of the firm bounce in price, there still wouldn't be many who think Silence Therapeutics' price-to-sales (or "P/S") ratio of 12.9x is worth a mention when the median P/S in the United States' Biotechs industry is similar at about 11.3x. 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 Silence Therapeutics

How Silence Therapeutics Has Been Performing

Recent times have been advantageous for Silence Therapeutics as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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

How Is Silence Therapeutics' Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Silence Therapeutics' is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 74%. This great performance means it was also able to deliver immense revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Shifting to the future, estimates from the four analysts covering the company suggest revenue growth is heading into negative territory, declining 5.9% per year over the next three years. That's not great when the rest of the industry is expected to grow by 196% per annum.

With this in consideration, we think it doesn't make sense that Silence Therapeutics' P/S is closely matching its industry peers. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. 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 negative growth outlook.

What Does Silence Therapeutics' P/S Mean For Investors?

Its shares have lifted substantially and now Silence Therapeutics' P/S is back within range of the industry median. 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.

Our check of Silence Therapeutics' analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Silence Therapeutics (1 is a bit concerning!) that you should be aware of before investing here.

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.