The Market Doesn't Like What It Sees From Codexis, Inc.'s (NASDAQ:CDXS) Revenues Yet
With a price-to-sales (or "P/S") ratio of 1.5x Codexis, Inc. (NASDAQ:CDXS) may be sending very bullish signals at the moment, given that almost half of all the Life Sciences companies in the United States have P/S ratios greater than 4.4x and even P/S higher than 8x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.
Check out our latest analysis for Codexis
What Does Codexis' P/S Mean For Shareholders?
While the industry has experienced revenue growth lately, Codexis' revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
Keen to find out how analysts think Codexis' future stacks up against the industry? In that case, our free report is a great place to start.
Do Revenue Forecasts Match The Low P/S Ratio?
Codexis' 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.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 4.8%. Still, the latest three year period has seen an excellent 72% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to slump, contracting by 1.9% per year during the coming three years according to the eight analysts following the company. That's not great when the rest of the industry is expected to grow by 10% per annum.
With this in consideration, we find it intriguing that Codexis' P/S is closely matching its industry peers. 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.
The Key Takeaway
Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Codexis' P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, Codexis' poor outlook justifies its low P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.
We don't want to rain on the parade too much, but we did also find 3 warning signs for Codexis that you need to be mindful of.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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