SQZ Biotechnologies Company (NYSE:SQZ) Might Not Be As Mispriced As It Looks After Plunging 30%

SQZ Biotechnologies Company (NYSE:SQZ) shareholders that were waiting for something to happen have been dealt a blow with a 30% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 88% loss during that time.

Following the heavy fall in price, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 15x, you may consider SQZ Biotechnologies as a highly attractive investment with its -0.2x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

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

See our latest analysis for SQZ Biotechnologies

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How Is SQZ Biotechnologies' Growth Trending?

In order to justify its P/E ratio, SQZ Biotechnologies would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. That's essentially a continuation of what we've seen over the last three years, as its EPS growth has been virtually non-existent for that entire period. Accordingly, shareholders probably wouldn't have been satisfied with the complete absence of medium-term growth.

Turning to the outlook, the next year should generate growth of 16% as estimated by the two analysts watching the company. With the market only predicted to deliver 5.9%, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that SQZ Biotechnologies' P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From SQZ Biotechnologies' P/E?

Having almost fallen off a cliff, SQZ Biotechnologies' share price has pulled its P/E way down as well. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of SQZ Biotechnologies' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 4 warning signs for SQZ Biotechnologies you should be aware of, and 1 of them makes us a bit uncomfortable.

If you're unsure about the strength of SQZ Biotechnologies' 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.