Foghorn Therapeutics Inc. (NASDAQ:FHTX) Shares May Have Slumped 29% But Getting In Cheap Is Still Unlikely
The Foghorn Therapeutics Inc. (NASDAQ:FHTX) share price has fared very poorly over the last month, falling by a substantial 29%. For any long-term shareholders, the last month ends a year to forget by locking in a 57% share price decline.
Although its price has dipped substantially, it's still not a stretch to say that Foghorn Therapeutics' price-to-sales (or "P/S") ratio of 7.9x right now seems quite "middle-of-the-road" compared to the Biotechs industry in the United States, where the median P/S ratio is around 7.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
Check out our latest analysis for Foghorn Therapeutics
How Has Foghorn Therapeutics Performed Recently?
Foghorn Therapeutics could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Foghorn Therapeutics .Is There Some Revenue Growth Forecasted For Foghorn Therapeutics?
Foghorn 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.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 34%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, despite the drawbacks experienced in the last 12 months. Accordingly, shareholders will be pleased, but also have some serious questions to ponder about the last 12 months.
Looking ahead now, revenue is anticipated to climb by 23% per annum during the coming three years according to the seven analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 172% per annum, which is noticeably more attractive.
With this information, we find it interesting that Foghorn Therapeutics is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.
What Does Foghorn Therapeutics' P/S Mean For Investors?
Following Foghorn Therapeutics' share price tumble, its P/S is just clinging on to the industry median P/S. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
Our look at the analysts forecasts of Foghorn Therapeutics' revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. 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's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Foghorn Therapeutics (at least 2 which don't sit too well with us), and understanding them should be part of your investment process.
If these risks are making you reconsider your opinion on Foghorn 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.