More Unpleasant Surprises Could Be In Store For Taysha Gene Therapies, Inc.'s (NASDAQ:TSHA) Shares After Tumbling 37%

Taysha Gene Therapies, Inc. (NASDAQ:TSHA) shares have had a horrible month, losing 37% after a relatively good period beforehand. The good news is that in the last year, the stock has shone bright like a diamond, gaining 246%.

In spite of the heavy fall in price, Taysha Gene Therapies may still be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 27x, when you consider almost half of the companies in the Biotechs industry in the United States have P/S ratios under 11.1x and even P/S lower than 4x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for Taysha Gene Therapies

How Has Taysha Gene Therapies Performed Recently?

Taysha Gene Therapies' revenue growth of late has been pretty similar to most other companies. One possibility is that the P/S ratio is high because investors think this modest revenue performance will accelerate. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Enough Revenue Growth Forecasted For Taysha Gene Therapies?

In order to justify its P/S ratio, Taysha Gene Therapies would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 96% gain to the company's top line. Although, its longer-term performance hasn't been as strong with three-year revenue growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Shifting to the future, estimates from the eleven analysts covering the company suggest revenue should grow by 46% each year over the next three years. That's shaping up to be materially lower than the 195% each year growth forecast for the broader industry.

With this information, we find it concerning that Taysha Gene Therapies is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does Taysha Gene Therapies' P/S Mean For Investors?

Even after such a strong price drop, Taysha Gene Therapies' P/S still exceeds the industry median significantly. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Taysha Gene Therapies, this doesn't appear to be impacting the P/S in the slightest. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Taysha Gene Therapies (of which 2 make us uncomfortable!) you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com