Caribou Biosciences, Inc. (NASDAQ:CRBU) shareholders that were waiting for something to happen have been dealt a blow with a 27% share price drop in the last month. The recent drop has obliterated the annual return, with the share price now down 9.2% over that longer period.

Since its price has dipped substantially, Caribou Biosciences may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 10.1x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 13.1x and even P/S higher than 63x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

What Does Caribou Biosciences' Recent Performance Look Like?

Recent times haven't been great for Caribou Biosciences as its revenue has been rising slower than most other companies. 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Caribou Biosciences.

How Is Caribou Biosciences' Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 149% last year. Pleasingly, revenue has also lifted 179% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 22% per annum as estimated by the nine analysts watching the company. With the industry predicted to deliver 160% growth each year, the company is positioned for a weaker revenue result.

With this information, we can see why Caribou Biosciences is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Caribou Biosciences' P/S?

Caribou Biosciences' recently weak share price has pulled its P/S back below other Biotechs companies. 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 Caribou Biosciences' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. 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.

Plus, you should also learn about these 4 warning signs we've spotted with Caribou Biosciences (including 1 which can't be ignored).

If you're unsure about the strength of Caribou Biosciences' 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.