Despite an already strong run, Werewolf Therapeutics, Inc. (NASDAQ:HOWL) shares have been powering on, with a gain of 27% in the last thirty days. Taking a wider view, although not as strong as the last month, the full year gain of 19% is also fairly reasonable.

Although its price has surged higher, Werewolf Therapeutics may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 6.9x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 13.1x and even P/S higher than 55x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Werewolf Therapeutics

How Has Werewolf Therapeutics Performed Recently?

Werewolf Therapeutics certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If you 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.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, Werewolf Therapeutics would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered an exceptional 182% gain to the company's top line. Although, its longer-term performance hasn't been as strong with three-year revenue growth being relatively non-existent overall. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 13% per year during the coming three years according to the four analysts following the company. Meanwhile, the broader industry is forecast to expand by 236% per annum, which paints a poor picture.

With this in consideration, we find it intriguing that Werewolf Therapeutics' P/S is closely matching its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From Werewolf Therapeutics' P/S?

Werewolf Therapeutics' stock price has surged recently, but its but its P/S still remains modest. 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.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Werewolf Therapeutics' P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, Werewolf Therapeutics' poor outlook justifies its low P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Werewolf Therapeutics (at least 2 which are a bit unpleasant), and understanding these should be part of your investment process.

If you're unsure about the strength of Werewolf 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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