ADC Therapeutics SA's (NYSE:ADCT) 26% Dip In Price Shows Sentiment Is Matching Revenues

The ADC Therapeutics SA (NYSE:ADCT) share price has fared very poorly over the last month, falling by a substantial 26%. Looking at the bigger picture, even after this poor month the stock is up 42% in the last year.

Following the heavy fall in price, ADC Therapeutics may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 4.7x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 11.2x and even P/S higher than 66x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

View our latest analysis for ADC Therapeutics

How ADC Therapeutics Has Been Performing

ADC Therapeutics hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

Is There Any Revenue Growth Forecasted For ADC Therapeutics?

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

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 62%. Unfortunately, that's brought it right back to where it started three years ago with revenue growth being virtually non-existent overall during that time. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 29% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 210% each year, which is noticeably more attractive.

With this in consideration, its clear as to why ADC Therapeutics' P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On ADC Therapeutics' P/S

Having almost fallen off a cliff, ADC Therapeutics' share price has pulled its P/S way down as well. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

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. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

Having said that, be aware ADC Therapeutics is showing 5 warning signs in our investment analysis, and 1 of those is a bit concerning.

If these risks are making you reconsider your opinion on ADC Therapeutics, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.