Immatics N.V.'s (NASDAQ:IMTX) price-to-sales (or "P/S") ratio of 19.3x might make it look like a sell right now compared to the Biotechs industry in the United States, where around half of the companies have P/S ratios below 13.5x and even P/S below 4x 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 as high as it is.

What Does Immatics' P/S Mean For Shareholders?

Immatics hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

How Is Immatics' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as Immatics' is when the company's growth is on track to outshine the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 69%. Still, the latest three year period has seen an excellent 73% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to slump, contracting by 2.6% per annum during the coming three years according to the seven analysts following the company. Meanwhile, the broader industry is forecast to expand by 165% each year, which paints a poor picture.

In light of this, it's alarming that Immatics' P/S sits above the majority of other companies. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

What Does Immatics' P/S Mean For Investors?

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.

Our examination of Immatics' analyst forecasts revealed that its shrinking revenue outlook isn't drawing down its high P/S anywhere near as much as we would have predicted. In cases like this where we see revenue decline on the horizon, we suspect the share price is at risk of following suit, bringing back the high P/S into the realms of suitability. At these price levels, investors should remain cautious, particularly if things don't improve.

Before you settle on your opinion, we've discovered 3 warning signs for Immatics (1 is a bit unpleasant!) that you should be aware of.

If you're unsure about the strength of Immatics' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.