Unpleasant Surprises Could Be In Store For Alnylam Pharmaceuticals, Inc.'s (NASDAQ:ALNY) Shares
Alnylam Pharmaceuticals, Inc.'s (NASDAQ:ALNY) price-to-sales (or "P/S") ratio of 20.1x might make it look like a strong sell right now compared to the Biotechs industry in the United States, where around half of the companies have P/S ratios below 12.8x and even P/S below 4x are quite common. 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.
View our latest analysis for Alnylam Pharmaceuticals
What Does Alnylam Pharmaceuticals' Recent Performance Look Like?
Recent times have been advantageous for Alnylam Pharmaceuticals as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Keen to find out how analysts think Alnylam Pharmaceuticals' 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 Alnylam Pharmaceuticals' to be considered reasonable.
Retrospectively, the last year delivered an exceptional 30% gain to the company's top line. The latest three year period has also seen an excellent 300% 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 analysts covering the company suggest revenue should grow by 37% per annum over the next three years. With the industry predicted to deliver 99% growth each year, the company is positioned for a weaker revenue result.
In light of this, it's alarming that Alnylam Pharmaceuticals' P/S sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. 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.
What Does Alnylam 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.
It comes as a surprise to see Alnylam Pharmaceuticals trade at such a high P/S given the revenue forecasts look less than stellar. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.
You need to take note of risks, for example - Alnylam Pharmaceuticals has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.
If you're unsure about the strength of Alnylam Pharmaceuticals' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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
