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.
你可能会认为,市销率(或 “市盈率”)为7倍的Wave Life Sciences Ltd.(纳斯达克股票代码:WVE)是值得完全避免的股票,因为美国几乎有一半的制药公司的市销率低于3倍,即使市盈率低于0.7倍也并非不寻常。但是,仅按面值计算市销率是不明智的,因为可以解释其为何如此之高。
查看我们对 Wave 生命科学的最新分析
Wave Life Sciences最近的表现如何?
最近对Wave Life Sciences来说是有利的,因为其收入的增长速度快于大多数其他公司。市销率可能很高,因为投资者认为这种强劲的收入表现将继续下去。你真的希望如此,否则你会无缘无故地付出相当大的代价。
想全面了解分析师对公司的估计吗?然后,我们关于Wave Life Sciences的免费报告将帮助您发现即将发生的事情。
收入增长指标告诉我们高市销率有哪些?
Wave Life Sciences的市销率对于一家预计将实现非常强劲的增长,而且重要的是,其表现要好于行业的公司来说是典型的。