Arcus Biosciences, Inc.'s (NYSE:RCUS) Shares Bounce 33% But Its Business Still Trails The Industry

Arcus Biosciences, Inc. (NYSE:RCUS) shareholders are no doubt pleased to see that the share price has bounced 33% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 42% in the last twelve months.

In spite of the firm bounce in price, Arcus Biosciences may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 3.7x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 9.3x and even P/S higher than 49x 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 limited.

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See our latest analysis for Arcus Biosciences

How Has Arcus Biosciences Performed Recently?

Recent times haven't been great for Arcus Biosciences as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Arcus Biosciences will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Arcus Biosciences?

Arcus Biosciences' 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.

Retrospectively, the last year delivered an exceptional 121% gain to the company's top line. However, this wasn't enough as the latest three year period has seen the company endure a nasty 33% drop in revenue in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 0.4% per year as estimated by the ten analysts watching the company. With the industry predicted to deliver 157% growth per year, that's a disappointing outcome.

In light of this, it's understandable that Arcus Biosciences' P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

Shares in Arcus Biosciences have risen appreciably however, its P/S is still subdued. 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 Arcus Biosciences' P/S is on the lower end of the spectrum. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Arcus Biosciences you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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