ADC Therapeutics SA (NYSE:ADCT) Shares Fly 38% But Investors Aren't Buying For Growth

Despite an already strong run, ADC Therapeutics SA (NYSE:ADCT) shares have been powering on, with a gain of 38% in the last thirty days. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 61% share price drop in the last twelve months.

Although its price has surged higher, ADC Therapeutics may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.2x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 12.9x and even P/S higher than 51x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for ADC Therapeutics

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

While the industry has experienced revenue growth lately, ADC Therapeutics' revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

How Is ADC Therapeutics' Revenue Growth Trending?

ADC 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.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 22%. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Looking ahead now, revenue is anticipated to climb by 6.5% each year during the coming three years according to the four analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 239% each year, which is noticeably more attractive.

With this information, we can see why ADC Therapeutics is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On ADC Therapeutics' P/S

Shares in ADC Therapeutics have risen appreciably however, its P/S is still subdued. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of ADC Therapeutics' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you take the next step, you should know about the 3 warning signs for ADC Therapeutics (2 are concerning!) that we have uncovered.

If you're unsure about the strength of ADC 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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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.