You may think that with a price-to-sales (or "P/S") ratio of 7x Wave Life Sciences Ltd. (NASDAQ:WVE) is a stock to avoid completely, seeing as almost half of all the Pharmaceuticals companies in the United States have P/S ratios under 3x and even P/S lower than 0.7x 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.
View our latest analysis for Wave Life Sciences
What Does Wave Life Sciences' Recent Performance Look Like?
Recent times have been advantageous for Wave Life Sciences as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Want the full picture on analyst estimates for the company? Then our free report on Wave Life Sciences will help you uncover what's on the horizon.
What Are Revenue Growth Metrics Telling Us About The High P/S?
Wave Life Sciences' 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.
If we review the last year of revenue growth, we see the company's revenues grew exponentially. The amazing performance means it was also able to deliver huge revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Looking ahead now, revenue is anticipated to slump, contracting by 12% per annum during the coming three years according to the six analysts following the company. That's not great when the rest of the industry is expected to grow by 51% per annum.
In light of this, it's alarming that Wave Life Sciences' P/S sits above the majority of other companies. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.
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.
Our examination of Wave Life Sciences' analyst forecasts revealed that its shrinking revenue outlook isn't drawing down its high P/S anywhere near as much as we would have predicted. In cases like this where we see revenue decline on the horizon, we suspect the share price is at risk of following suit, bringing back the high P/S into the realms of suitability. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.
There are also other vital risk factors to consider and we've discovered 4 warning signs for Wave Life Sciences (1 can't be ignored!) that you should be aware of before investing here.
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.
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.
你可能會認爲,市銷率(或 “市盈率”)爲7倍的Wave Life Sciences Ltd.(納斯達克股票代碼:WVE)是值得完全避免的股票,因爲美國幾乎有一半的製藥公司的市銷率低於3倍,即使市盈率低於0.7倍也並非不尋常。但是,僅按面值計算市銷率是不明智的,因爲可以解釋其爲何如此之高。
查看我們對 Wave 生命科學的最新分析
Wave Life Sciences最近的表現如何?
最近對Wave Life Sciences來說是有利的,因爲其收入的增長速度快於大多數其他公司。市銷率可能很高,因爲投資者認爲這種強勁的收入表現將繼續下去。你真的希望如此,否則你會無緣無故地付出相當大的代價。
想全面了解分析師對公司的估計嗎?然後,我們關於Wave Life Sciences的免費報告將幫助您發現即將發生的事情。
關於高市盈率,收入增長指標告訴我們什麼?
Wave Life Sciences的市銷率對於一家預計將實現非常強勁的增長,而且重要的是,其表現要好於行業的公司來說是典型的。