Pacific Biosciences of California, Inc.'s (NASDAQ:PACB) P/S Is On The Mark
Pacific Biosciences of California, Inc.'s (NASDAQ:PACB) price-to-sales (or "P/S") ratio of 19.7x might make it look like a strong sell right now compared to the Life Sciences industry in the United States, where around half of the companies have P/S ratios below 4.5x and even P/S below 2x are quite common. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.
Check out our latest analysis for Pacific Biosciences of California
How Pacific Biosciences of California Has Been Performing
With revenue growth that's superior to most other companies of late, Pacific Biosciences of California has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.
Keen to find out how analysts think Pacific Biosciences of California's future stacks up against the industry? In that case, our free report is a great place to start.
Do Revenue Forecasts Match The High P/S Ratio?
There's an inherent assumption that a company should far outperform the industry for P/S ratios like Pacific Biosciences of California's to be considered reasonable.
If we review the last year of revenue growth, the company posted a worthy increase of 4.7%. The latest three year period has also seen an excellent 77% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to climb by 47% per year during the coming three years according to the ten analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 13% each year, which is noticeably less attractive.
With this information, we can see why Pacific Biosciences of California 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 Final Word
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 Pacific Biosciences of California shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.
Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Pacific Biosciences of California that you should be aware 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.
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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.
