With a price-to-sales (or "P/S") ratio of 7.3x BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) may be sending bullish signals at the moment, given that almost half of all the Biotechs companies in the United States have P/S ratios greater than 14x and even P/S higher than 57x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
NasdaqGS:BMRN Price to Sales Ratio vs Industry February 8th 2024
How BioMarin Pharmaceutical Has Been Performing
BioMarin Pharmaceutical could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
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Do Revenue Forecasts Match The Low P/S Ratio?
In order to justify its P/S ratio, BioMarin Pharmaceutical would need to produce sluggish growth that's trailing the industry.
Taking a look back first, we see that the company grew revenue by an impressive 15% last year. The latest three year period has also seen a 24% overall rise in revenue, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.
Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 16% per year over the next three years. With the industry predicted to deliver 242% growth per year, the company is positioned for a weaker revenue result.
With this in consideration, its clear as to why BioMarin Pharmaceutical's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Final Word
It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
We've established that BioMarin Pharmaceutical maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for BioMarin Pharmaceutical with six simple checks.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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