Repare Therapeutics Inc.'s (NASDAQ:RPTX) Shares Bounce 30% But Its Business Still Trails The Industry

Repare Therapeutics Inc. (NASDAQ:RPTX) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. But the last month did very little to improve the 57% share price decline over the last year.

Although its price has surged higher, Repare Therapeutics' price-to-sales (or "P/S") ratio of 1.1x might still make it look like a strong buy right now compared to the wider Biotechs industry in the United States, where around half of the companies have P/S ratios above 9.8x and even P/S above 51x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Repare Therapeutics

How Repare Therapeutics Has Been Performing

Repare Therapeutics could be doing better as it's been growing revenue less than most other companies lately. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

How Is Repare Therapeutics' Revenue Growth Trending?

Repare Therapeutics' P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 4.6%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, even though the last 12 months were fairly tame in comparison. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 100% each year as estimated by the three analysts watching the company. That's not great when the rest of the industry is expected to grow by 173% each year.

In light of this, it's understandable that Repare Therapeutics' P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From Repare Therapeutics' P/S?

Repare Therapeutics' recent share price jump still sees fails to bring its P/S alongside the industry median. 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.

It's clear to see that Repare Therapeutics 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Repare Therapeutics (1 is a bit unpleasant) you should be aware of.

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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.