Investors Still Waiting For A Pull Back In Adaptive Biotechnologies Corporation (NASDAQ:ADPT)
You may think that with a price-to-sales (or "P/S") ratio of 6.4x Adaptive Biotechnologies Corporation (NASDAQ:ADPT) is a stock to potentially avoid, seeing as almost half of all the Life Sciences companies in the United States have P/S ratios under 4.4x and even P/S lower than 2x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.
Check out our latest analysis for Adaptive Biotechnologies
What Does Adaptive Biotechnologies' P/S Mean For Shareholders?
With revenue growth that's superior to most other companies of late, Adaptive Biotechnologies has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Want the full picture on analyst estimates for the company? Then our free report on Adaptive Biotechnologies will help you uncover what's on the horizon.
What Are Revenue Growth Metrics Telling Us About The High P/S?
The only time you'd be truly comfortable seeing a P/S as high as Adaptive Biotechnologies' is when the company's growth is on track to outshine the industry.
Retrospectively, the last year delivered an exceptional 20% gain to the company's top line. The latest three year period has also seen an excellent 118% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Shifting to the future, estimates from the ten analysts covering the company suggest revenue should grow by 26% each year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 6.9% per annum, which is noticeably less attractive.
With this in mind, it's not hard to understand why Adaptive Biotechnologies' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
What We Can Learn From Adaptive Biotechnologies' P/S?
Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We've established that Adaptive Biotechnologies maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Life Sciences industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.
Before you settle on your opinion, we've discovered 2 warning signs for Adaptive Biotechnologies that you should be aware of.
If these risks are making you reconsider your opinion on Adaptive Biotechnologies, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.
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