Lacklustre Performance Is Driving Entrada Therapeutics, Inc.'s (NASDAQ:TRDA) 27% Price Drop

To the annoyance of some shareholders, Entrada Therapeutics, Inc. (NASDAQ:TRDA) shares are down a considerable 27% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 42% in that time.

After such a large drop in price, Entrada Therapeutics may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.4x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 8.8x and even P/S higher than 46x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

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How Entrada Therapeutics Has Been Performing

With revenue growth that's inferior to most other companies of late, Entrada Therapeutics has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Entrada Therapeutics .

Do Revenue Forecasts Match The Low P/S Ratio?

Entrada Therapeutics' P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 63%. Although, its longer-term performance hasn't been as strong with three-year revenue growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, revenue is anticipated to slump, contracting by 44% each year during the coming three years according to the six analysts following the company. With the industry predicted to deliver 170% growth each year, that's a disappointing outcome.

In light of this, it's understandable that Entrada Therapeutics' P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

Having almost fallen off a cliff, Entrada Therapeutics' share price has pulled its P/S way down as well. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Entrada Therapeutics' P/S is on the lower end of the spectrum. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. 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 1 warning sign for Entrada Therapeutics that we have uncovered.

If you're unsure about the strength of Entrada Therapeutics' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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