Spero Therapeutics, Inc. (NASDAQ:SPRO) Held Back By Insufficient Growth Even After Shares Climb 27%

Spero Therapeutics, Inc. (NASDAQ:SPRO) shares have continued their recent momentum with a 27% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 21% is also fairly reasonable.

In spite of the firm bounce in price, Spero Therapeutics may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.2x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 15.9x and even P/S higher than 76x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

View our latest analysis for Spero Therapeutics

What Does Spero Therapeutics' Recent Performance Look Like?

Recent times have been advantageous for Spero Therapeutics as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. 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 out of favour.

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

Do Revenue Forecasts Match The Low P/S Ratio?

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

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. Spectacularly, three year revenue growth has also set the world alight, thanks to the last 12 months of incredible growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Looking ahead now, revenue is anticipated to slump, contracting by 1.6% per year during the coming three years according to the three analysts following the company. With the industry predicted to deliver 262% growth each year, that's a disappointing outcome.

In light of this, it's understandable that Spero Therapeutics' P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

Spero Therapeutics' recent share price jump still sees fails to bring its P/S alongside the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

It's clear to see that Spero Therapeutics maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you take the next step, you should know about the 4 warning signs for Spero Therapeutics that we have uncovered.

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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