Theravance Biopharma, Inc.'s (NASDAQ:TBPH) Share Price Not Quite Adding Up
Theravance Biopharma, Inc.'s (NASDAQ:TBPH) price-to-sales (or "P/S") ratio of 14.7x might make it look like a strong sell right now compared to the Pharmaceuticals industry in the United States, where around half of the companies have P/S ratios below 3.1x and even P/S below 0.9x 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.
See our latest analysis for Theravance Biopharma
How Has Theravance Biopharma Performed Recently?
Theravance Biopharma could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Theravance Biopharma.
How Is Theravance Biopharma's Revenue Growth Trending?
Theravance Biopharma's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 7.2%. As a result, revenue from three years ago have also fallen 30% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.
Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 24% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 31% each year, which is noticeably more attractive.
With this information, we find it concerning that Theravance Biopharma is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.
The Key Takeaway
We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
It comes as a surprise to see Theravance Biopharma trade at such a high P/S given the revenue forecasts look less than stellar. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.
Before you take the next step, you should know about the 1 warning sign for Theravance Biopharma that we have uncovered.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
