Subdued Growth No Barrier To TScan Therapeutics, Inc.'s (NASDAQ:TCRX) Price

It's not a stretch to say that TScan Therapeutics, Inc.'s (NASDAQ:TCRX) price-to-sales (or "P/S") ratio of 18.2x right now seems quite "middle-of-the-road" for companies in the Biotechs industry in the United States, where the median P/S ratio is around 15.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for TScan Therapeutics

How Has TScan Therapeutics Performed Recently?

Recent times haven't been great for TScan Therapeutics as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Is There Some Revenue Growth Forecasted For TScan Therapeutics?

In order to justify its P/S ratio, TScan Therapeutics would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 56% gain to the company's top line. 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.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 16% each year as estimated by the four analysts watching the company. Meanwhile, the broader industry is forecast to expand by 152% each year, which paints a poor picture.

In light of this, it's somewhat alarming that TScan Therapeutics' P/S sits in line with the majority of other companies. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

The Key Takeaway

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.

While TScan Therapeutics' P/S isn't anything out of the ordinary for companies in the industry, we didn't expect it given forecasts of revenue decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

Before you take the next step, you should know about the 3 warning signs for TScan Therapeutics (2 are a bit 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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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.