Natera, Inc.'s (NASDAQ:NTRA) price-to-sales (or "P/S") ratio of 8.4x might make it look like a buy right now compared to the Biotechs industry in the United States, where around half of the companies have P/S ratios above 13.9x and even P/S above 56x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

How Has Natera Performed Recently?

Recent revenue growth for Natera has been in line with the industry. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. Those who are bullish on Natera will be hoping that this isn't the case.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

The only time you'd be truly comfortable seeing a P/S as low as Natera's is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 27%. The strong recent performance means it was also able to grow revenue by 173% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 22% per year during the coming three years according to the analysts following the company. With the industry predicted to deliver 231% growth per annum, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Natera's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Natera's P/S

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Natera maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 2 warning signs for Natera that you should be aware of.

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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