Insufficient Growth At C4 Therapeutics, Inc. (NASDAQ:CCCC) Hampers Share Price
You may think that with a price-to-sales (or "P/S") ratio of 7.3x C4 Therapeutics, Inc. (NASDAQ:CCCC) is a stock worth checking out, seeing as almost half of all the Biotechs companies in the United States have P/S ratios greater than 12.3x and even P/S higher than 90x 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 limited.
See our latest analysis for C4 Therapeutics
What Does C4 Therapeutics' P/S Mean For Shareholders?
C4 Therapeutics could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still like the company, you'd be hoping this isn't the case so that you could potentially 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 C4 Therapeutics will help you uncover what's on the horizon.Do Revenue Forecasts Match The Low P/S Ratio?
The only time you'd be truly comfortable seeing a P/S as low as C4 Therapeutics' is when the company's growth is on track to lag the industry.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 11%. As a result, revenue from three years ago have also fallen 38% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to climb by 44% per year during the coming three years according to the six analysts following the company. With the industry predicted to deliver 132% growth each year, the company is positioned for a weaker revenue result.
With this in consideration, its clear as to why C4 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 Key Takeaway
Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
As we suspected, our examination of C4 Therapeutics' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.
There are also other vital risk factors to consider and we've discovered 3 warning signs for C4 Therapeutics (1 can't be ignored!) that you should be aware of before investing here.
If you're unsure about the strength of C4 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.