G1 Therapeutics, Inc. (NASDAQ:GTHX) shares have had a really impressive month, gaining 103% after a shaky period beforehand. The last month tops off a massive increase of 297% in the last year.

Even after such a large jump in price, G1 Therapeutics' price-to-sales (or "P/S") ratio of 6.4x might still make it look like a buy right now compared to the Biotechs industry in the United States, where around half of the companies have P/S ratios above 11.8x and even P/S above 66x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

What Does G1 Therapeutics' P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, G1 Therapeutics' revenue has gone into reverse gear, which is not great. 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.

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

In order to justify its P/S ratio, G1 Therapeutics would need to produce sluggish growth that's trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 35%. As a result, revenue from three years ago have also fallen 9.0% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 58% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 138% per annum, which is noticeably more attractive.

In light of this, it's understandable that G1 Therapeutics' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On G1 Therapeutics' P/S

The latest share price surge wasn't enough to lift G1 Therapeutics' P/S close to the industry median. 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.

As we suspected, our examination of G1 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 2 warning signs for G1 Therapeutics (1 shouldn't be ignored!) that you need to take into consideration.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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