Mersana Therapeutics, Inc. (NASDAQ:MRSN) shares have had a horrible month, losing 34% after a relatively good period beforehand.    The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 23% in that time.  

After such a large drop in price, Mersana Therapeutics may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 9.4x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 12.5x and even P/S higher than 61x 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.  

NasdaqGS:MRSN Price to Sales Ratio vs Industry April 26th 2024

How Has Mersana Therapeutics Performed Recently?

With revenue growth that's inferior to most other companies of late, Mersana Therapeutics has been relatively sluggish.   The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better.  If you still like the company, you'd be hoping revenue doesn't get any worse and that you could 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 Mersana Therapeutics will help you uncover what's on the horizon.  

Do Revenue Forecasts Match The Low P/S Ratio?  

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

If we review the last year of revenue growth, the company posted a terrific increase of 39%.   Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth.  So we can start by confirming that the company has done a tremendous job of growing revenue over that time.  

Shifting to the future, estimates from the nine analysts covering the company suggest revenue growth is heading into negative territory, declining 5.1% per year over the next three years.  Meanwhile, the broader industry is forecast to expand by 159% per annum, which paints a poor picture.

In light of this, it's understandable that Mersana 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.  There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.  

The Key Takeaway

Mersana Therapeutics' P/S has taken a dip along with its share price.      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.

It's clear to see that Mersana Therapeutics maintains its low P/S on the weakness of its forecast for sliding revenue, as expected.  At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio.  Unless these conditions improve, they will continue to form a barrier for the share price around these levels.    

We don't want to rain on the parade too much, but we did also find 3 warning signs for Mersana Therapeutics that you need to be mindful of.  

If these risks are making you reconsider your opinion on Mersana Therapeutics, explore our interactive list of high quality stocks to get an idea of what else is out there.

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