Revenues Working Against Monte Rosa Therapeutics, Inc.'s (NASDAQ:GLUE) Share Price Following 26% Dive

To the annoyance of some shareholders, Monte Rosa Therapeutics, Inc. (NASDAQ:GLUE) shares are down a considerable 26% in the last month, which continues a horrid run for the company. The recent drop has obliterated the annual return, with the share price now down 4.6% over that longer period.

In spite of the heavy fall in price, Monte Rosa Therapeutics may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.5x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 7.9x and even P/S higher than 46x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

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Check out our latest analysis for Monte Rosa Therapeutics

What Does Monte Rosa Therapeutics' P/S Mean For Shareholders?

Recent times have been advantageous for Monte Rosa Therapeutics as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

How Is Monte Rosa Therapeutics' Revenue Growth Trending?

In order to justify its P/S ratio, Monte Rosa Therapeutics would need to produce anemic growth that's substantially trailing the industry.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. In spite of this unbelievable short-term growth, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Looking ahead now, revenue is anticipated to slump, contracting by 32% per annum during the coming three years according to the eight analysts following the company. With the industry predicted to deliver 163% growth each year, that's a disappointing outcome.

In light of this, it's understandable that Monte Rosa Therapeutics' 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 Final Word

Shares in Monte Rosa Therapeutics have plummeted and its P/S has followed suit. 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.

It's clear to see that Monte Rosa Therapeutics maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. As other companies in the industry are forecasting revenue growth, Monte Rosa Therapeutics' poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

You always need to take note of risks, for example - Monte Rosa Therapeutics has 1 warning sign we think you should be aware of.

If these risks are making you reconsider your opinion on Monte Rosa 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.