There Is A Reason Entrada Therapeutics, Inc.'s (NASDAQ:TRDA) Price Is Undemanding

Entrada Therapeutics, Inc.'s (NASDAQ:TRDA) price-to-sales (or "P/S") ratio of 2.6x might make it look like a strong buy right now compared to the Biotechs industry in the United States, where around half of the companies have P/S ratios above 12.2x and even P/S above 74x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Entrada Therapeutics

How Has Entrada Therapeutics Performed Recently?

With revenue growth that's superior to most other companies of late, Entrada Therapeutics has been doing relatively well. 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.

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

How Is Entrada Therapeutics' Revenue Growth Trending?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Entrada Therapeutics' to be considered reasonable.

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. In spite of this unbelievable short-term growth, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 57% each year during the coming three years according to the five analysts following the company. That's not great when the rest of the industry is expected to grow by 146% each year.

With this in consideration, we find it intriguing that Entrada Therapeutics' P/S is closely matching its industry peers. 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.

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

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. As other companies in the industry are forecasting revenue growth, Entrada Therapeutics' poor outlook justifies its low P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Entrada Therapeutics you should be aware of, and 1 of them makes us a bit uncomfortable.

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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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.