Mersana Therapeutics, Inc. (NASDAQ:MRSN) is priced right, but growth is missing after shares rose 25%

Despite an already strong run Mersana Therapeutics, Inc. (NASDAQ:MRSN) shares are on the rise, up 25% in the last thirty days. Looking back, the 20% increase over the last twelve months isn’t too bad, despite the strength over the last 30 days.

Despite the significant price recovery, Mersana Therapeutics’ price-to-sales ratio (or “P/S”) of 8.1x could still be sending buy signals at the moment, considering that almost half of all biotech companies are active in the sector In the United States, P/S ratios are over 10.3x, and even P/S ratios over 64x are not uncommon. Still, we would have to dig a little deeper to determine whether there is a rational basis for the reduced P/S.

Check out our latest analysis for Mersana Therapeutics

How Mersana Therapeutics has developed

While the industry has seen revenue growth recently, Mersana Therapeutics’ revenue has gone into reverse, which isn’t great. The P/E ratio is likely low because investors believe this poor sales performance won’t improve. If this is the case, existing shareholders will likely have difficulty getting excited about the future direction of the share price.

If you want to see what analysts are predicting for the future, you should check out our free Report on Mersana Therapeutics.

What do revenue growth metrics tell us about the low P/E ratio?

A P/E ratio as low as Mersana Therapeutics’ would only really be comfortable for you if the company’s growth lags the industry.

When we reviewed the last financial year, we were disheartened to see that the company’s revenue fell by about 15%. The last three-year period has seen an incredible increase in overall sales, a stark contrast to the last 12 months. Accordingly, shareholders will be happy, but they also have some serious questions to consider about the last 12 months.

Looking ahead, the next three years are likely to bring lower returns, with revenue expected to fall 2.1% per year, according to estimates from the ten analysts covering the company. Meanwhile, the entire industry is forecast to grow by 122% each year, which paints a poor picture.

With this in mind, we find it fascinating that Mersana Therapeutics’ P/S is very close to that of its industry peers. However, shrinking revenues are unlikely to result in a stable price-to-earnings ratio in the longer term. Even maintaining these prices could be difficult as the weak outlook weighs on stocks.

The last word

Although Mersana Therapeutics’ share price has risen recently, its P/E ratio still lags behind most other companies. We typically caution against reading too much into the price-to-sales ratio when making investment decisions, even though it can reveal a lot about what other market participants think about the company.

It is clear to see that Mersana Therapeutics is maintaining its low price-to-earnings ratio as expected due to the weak forecast for declining sales. With other companies in the industry forecasting revenue growth, Mersana Therapeutics’ poor outlook justifies its low P/E ratio. Without significant changes, it’s hard to imagine a situation where the stock price will rise dramatically.

And what about other risks? Every company has them, and we discovered them 3 warning signs for Mersana Therapeutics you should know that.

If companies with a history of solid earnings growth are right for youmaybe you would like to see this free Collection of other companies with strong earnings growth and low P/E ratios.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.