Olink Holding AB (publ) (NASDAQ:OLK) Not Lagging Industry On Growth Or Pricing
You may think that with a price-to-sales (or "P/S") ratio of 19.7x Olink Holding AB (publ) (NASDAQ:OLK) is a stock to avoid completely, 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 1.9x 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 so lofty.
See our latest analysis for Olink Holding
What Does Olink Holding's P/S Mean For Shareholders?
Olink Holding certainly has been doing a good job lately as it's been growing revenue more than most other companies. 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.
Keen to find out how analysts think Olink Holding's future stacks up against the industry? In that case, our free report is a great place to start.
How Is Olink Holding's Revenue Growth Trending?
In order to justify its P/S ratio, Olink Holding would need to produce outstanding growth that's well in excess of the industry.
Retrospectively, the last year delivered an exceptional 47% gain to the company's top line. The latest three year period has also seen an excellent 202% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.
Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 35% per annum over the next three years. That's shaping up to be materially higher than the 7.6% each year growth forecast for the broader industry.
With this information, we can see why Olink Holding is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
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.
Our look into Olink Holding shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.
It is also worth noting that we have found 1 warning sign for Olink Holding that you need to take into consideration.
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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