Arbutus Biopharma Corporation's (NASDAQ:ABUS) Share Price Could Signal Some Risk
With a median price-to-sales (or "P/S") ratio of close to 11.8x in the Biotechs industry in the United States, you could be forgiven for feeling indifferent about Arbutus Biopharma Corporation's (NASDAQ:ABUS) P/S ratio of 12.4x. 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 Arbutus Biopharma
What Does Arbutus Biopharma's P/S Mean For Shareholders?
With revenue growth that's superior to most other companies of late, Arbutus Biopharma has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.
Keen to find out how analysts think Arbutus Biopharma's future stacks up against the industry? In that case, our free report is a great place to start.
How Is Arbutus Biopharma's Revenue Growth Trending?
Arbutus Biopharma's 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.
If we review the last year of revenue growth, we see the company's revenues grew exponentially. The amazing performance means it was also able to deliver huge revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Shifting to the future, estimates from the five analysts covering the company suggest revenue growth is heading into negative territory, declining 24% per year over the next three years. That's not great when the rest of the industry is expected to grow by 95% per year.
In light of this, it's somewhat alarming that Arbutus Biopharma's P/S sits in line with the majority of other companies. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.
The Bottom Line On Arbutus Biopharma's 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 check of Arbutus Biopharma's analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If the poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.
You should always think about risks. Case in point, we've spotted 2 warning signs for Arbutus Biopharma you should be aware of.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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.
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