Unfortunately for some shareholders, the HOOKIPA Pharma Inc. (NASDAQ:HOOK) share price has dived 26% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 72% share price decline.

Following the heavy fall in price, HOOKIPA Pharma may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.5x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 9.7x and even P/S higher than 61x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

How Has HOOKIPA Pharma Performed Recently?

With revenue growth that's inferior to most other companies of late, HOOKIPA Pharma has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. 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 HOOKIPA Pharma will help you uncover what's on the horizon.

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

In order to justify its P/S ratio, HOOKIPA Pharma would need to produce anemic growth that's substantially trailing the industry.

Taking a look back first, we see that the company grew revenue by an impressive 143% last year. The strong recent performance means it was also able to grow revenue by 154% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 46% each year during the coming three years according to the dual analysts following the company. Meanwhile, the broader industry is forecast to expand by 114% each year, which paints a poor picture.

With this in consideration, we find it intriguing that HOOKIPA Pharma's P/S is closely matching its industry peers. 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 Bottom Line On HOOKIPA Pharma's P/S

Shares in HOOKIPA Pharma have plummeted and its P/S has followed suit. 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 HOOKIPA Pharma maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. 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.

You should always think about risks. Case in point, we've spotted 5 warning signs for HOOKIPA Pharma you should be aware of, and 2 of them shouldn't be ignored.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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.