ADC Therapeutics SA (NYSE:ADCT) Held Back By Insufficient Growth Even After Shares Climb 31%

Despite an already strong run, ADC Therapeutics SA (NYSE:ADCT) shares have been powering on, with a gain of 31% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 28% in the last year.

Although its price has surged higher, ADC Therapeutics may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 5.9x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 10x and even P/S higher than 86x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for ADC Therapeutics

What Does ADC Therapeutics' P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, ADC Therapeutics has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

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

Taking a look back first, we see that the company grew revenue by an impressive 16% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 18% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 38% per year during the coming three years according to the five analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 128% per year, which is noticeably more attractive.

With this in consideration, its clear as to why ADC Therapeutics' P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From ADC Therapeutics' P/S?

Despite ADC Therapeutics' share price climbing recently, its P/S still lags most other companies. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As expected, our analysis of ADC Therapeutics' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 3 warning signs for ADC Therapeutics (1 makes us a bit uncomfortable!) that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.