Entrada Therapeutics, Inc. (NASDAQ:TRDA) Shares Fly 26% But Investors Aren't Buying For Growth

Entrada Therapeutics, Inc. (NASDAQ:TRDA) shares have continued their recent momentum with a 26% gain in the last month alone. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 38% in the last twelve months.

In spite of the firm bounce in price, Entrada Therapeutics' price-to-sales (or "P/S") ratio of 6.4x might still make it look like a buy right now compared to the Biotechs industry in the United States, where around half of the companies have P/S ratios above 11.8x and even P/S above 85x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

See our latest analysis for Entrada Therapeutics

How Has Entrada Therapeutics Performed Recently?

Entrada Therapeutics hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

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

The only time you'd be truly comfortable seeing a P/S as low as Entrada Therapeutics' is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 71%. Unfortunately, that's brought it right back to where it started three years ago with revenue growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 47% per annum as estimated by the five analysts watching the company. With the industry predicted to deliver 130% growth each year, that's a disappointing outcome.

In light of this, it's understandable that Entrada Therapeutics' P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What Does Entrada Therapeutics' P/S Mean For Investors?

Despite Entrada Therapeutics' share price climbing recently, its P/S still lags most other companies. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

It's clear to see that Entrada 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Entrada Therapeutics (at least 1 which can't be ignored), and understanding them should be part of your investment process.

If these risks are making you reconsider your opinion on Entrada Therapeutics, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.