Despite an already strong run, Mersana Therapeutics, Inc. (NASDAQ:MRSN) shares have been powering on, with a gain of 28% in the last thirty days. The last month tops off a massive increase of 113% in the last year.

In spite of the firm bounce in price, there still wouldn't be many who think Mersana Therapeutics' price-to-sales (or "P/S") ratio of 10.4x is worth a mention when the median P/S in the United States' Biotechs industry is similar at about 12.7x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

What Does Mersana Therapeutics' P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Mersana Therapeutics' revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Mersana Therapeutics' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Mersana Therapeutics' Revenue Growth Trending?

Mersana Therapeutics' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 23%. The latest three year period has seen an incredible overall rise in revenue, a stark contrast to the last 12 months. So while the company has done a great job in the past, it's somewhat concerning to see revenue growth decline so harshly.

Shifting to the future, estimates from the ten analysts covering the company suggest revenue should grow by 7.5% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 120% each year, which is noticeably more attractive.

With this in mind, we find it intriguing that Mersana Therapeutics' P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Mersana Therapeutics' P/S

Mersana Therapeutics appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

When you consider that Mersana Therapeutics' revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

It is also worth noting that we have found 2 warning signs for Mersana Therapeutics that you need to take into consideration.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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