Stoke Therapeutics, Inc. (NASDAQ:STOK) Held Back By Insufficient Growth Even After Shares Climb 39%

Stoke Therapeutics, Inc. (NASDAQ:STOK) shares have continued their recent momentum with a 39% gain in the last month alone. The annual gain comes to 155% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, Stoke Therapeutics' price-to-sales (or "P/S") ratio of 8.4x might still make it look like a buy right now compared to the Biotechs industry in the United States, where around half of the companies have P/S ratios above 10.5x and even P/S above 89x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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View our latest analysis for Stoke Therapeutics

How Stoke Therapeutics Has Been Performing

Stoke Therapeutics certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

How Is Stoke Therapeutics' Revenue Growth Trending?

Stoke Therapeutics' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. 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 35% per annum during the coming three years according to the eleven analysts following the company. With the industry predicted to deliver 126% growth per annum, that's a disappointing outcome.

In light of this, it's understandable that Stoke 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 Bottom Line On Stoke Therapeutics' P/S

Stoke Therapeutics' stock price has surged recently, but its but its P/S still remains modest. 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.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Stoke Therapeutics' P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, Stoke Therapeutics' poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

Before you take the next step, you should know about the 2 warning signs for Stoke Therapeutics (1 is concerning!) that we have uncovered.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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