There's Reason For Concern Over Mirum Pharmaceuticals, Inc.'s (NASDAQ:MIRM) Price
With a median price-to-sales (or "P/S") ratio of close to 12.8x in the Biotechs industry in the United States, you could be forgiven for feeling indifferent about Mirum Pharmaceuticals, Inc.'s (NASDAQ:MIRM) P/S ratio of 10.4x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
Check out our latest analysis for Mirum Pharmaceuticals
How Mirum Pharmaceuticals Has Been Performing
With revenue growth that's superior to most other companies of late, Mirum Pharmaceuticals has been doing relatively well. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Mirum Pharmaceuticals.
What Are Revenue Growth Metrics Telling Us About The P/S?
There's an inherent assumption that a company should be matching the industry for P/S ratios like Mirum Pharmaceuticals' to be considered reasonable.
Taking a look back first, we see that the company grew revenue by an impressive 199% last year. Although, its longer-term performance hasn't been as strong with three-year revenue growth being relatively non-existent overall. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.
Looking ahead now, revenue is anticipated to climb by 58% per annum during the coming three years according to the seven analysts following the company. That's shaping up to be materially lower than the 101% per year growth forecast for the broader industry.
With this in mind, we find it intriguing that Mirum Pharmaceuticals' P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.
What Does Mirum Pharmaceuticals' P/S Mean For Investors?
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 at the analysts forecasts of Mirum Pharmaceuticals' revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.
Having said that, be aware Mirum Pharmaceuticals is showing 1 warning sign in our investment analysis, you should know about.
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).
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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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