TG Therapeutics, Inc.'s (NASDAQ:TGTX) price-to-sales (or "P/S") ratio of 9.8x 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 15.4x and even P/S above 74x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
NasdaqCM:TGTX Price to Sales Ratio vs Industry March 13th 2024
How TG Therapeutics Has Been Performing
TG Therapeutics certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
Keen to find out how analysts think TG Therapeutics' future stacks up against the industry? In that case, our free report is a great place to start.
Do Revenue Forecasts Match The Low P/S Ratio?
In order to justify its P/S ratio, TG Therapeutics would need to produce sluggish growth that's trailing the industry.
If we review the last year of revenue growth, we see the company's revenues grew exponentially. Spectacularly, three year revenue growth has also set the world alight, thanks to the last 12 months of incredible growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Turning to the outlook, the next three years should generate growth of 39% per year as estimated by the eight analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 262% per year, which is noticeably more attractive.
With this information, we can see why TG Therapeutics is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Final Word
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.
As we suspected, our examination of TG Therapeutics' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with TG Therapeutics, and understanding them should be part of your investment process.
If you're unsure about the strength of TG Therapeutics' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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