MannKind Corporation's (NASDAQ:MNKD) price-to-sales (or "P/S") ratio of 6x 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 11.6x and even P/S above 49x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
View our latest analysis for MannKind
What Does MannKind's Recent Performance Look Like?
With revenue growth that's superior to most other companies of late, MannKind has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on MannKind.Do Revenue Forecasts Match The Low P/S Ratio?
The only time you'd be truly comfortable seeing a P/S as low as MannKind's is when the company's growth is on track to lag the industry.
Retrospectively, the last year delivered an exceptional 132% gain to the company's top line. The latest three year period has also seen an excellent 182% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 30% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 221% per annum, which is noticeably more attractive.
In light of this, it's understandable that MannKind's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Bottom Line On MannKind's P/S
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.
As we suspected, our examination of MannKind's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
Plus, you should also learn about these 2 warning signs we've spotted with MannKind (including 1 which is potentially serious).
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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