Despite an already strong run, Atara Biotherapeutics, Inc. (NASDAQ:ATRA) shares have been powering on, with a gain of 32% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 48% in the last year.

Although its price has surged higher, Atara Biotherapeutics may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.9x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 11x and even P/S higher than 70x 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 highly reduced P/S.

How Has Atara Biotherapeutics Performed Recently?

Recent times have been advantageous for Atara Biotherapeutics as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Is There Any Revenue Growth Forecasted For Atara Biotherapeutics?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Atara Biotherapeutics' to be considered reasonable.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 7.3% per year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 115% per annum, which is noticeably more attractive.

With this in consideration, its clear as to why Atara Biotherapeutics' 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

Shares in Atara Biotherapeutics have risen appreciably however, its P/S is still subdued. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As expected, our analysis of Atara Biotherapeutics' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. 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 6 warning signs for Atara Biotherapeutics (1 doesn't sit too well with us!) that you should be aware of before investing here.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.