With a price-to-sales (or "P/S") ratio of 6.8x BeiGene, Ltd. (NASDAQ:BGNE) may be sending very bullish signals at the moment, given that almost half of all the Biotechs companies in the United States have P/S ratios greater than 13.7x and even P/S higher than 56x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.
NasdaqGS:BGNE Price to Sales Ratio vs Industry February 5th 2024
What Does BeiGene's P/S Mean For Shareholders?
With revenue growth that's superior to most other companies of late, BeiGene has been doing relatively well. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.
Want the full picture on analyst estimates for the company? Then our free report on BeiGene will help you uncover what's on the horizon.
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 depressed as BeiGene's is when the company's growth is on track to lag the industry decidedly.
If we review the last year of revenue growth, the company posted a terrific increase of 76%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.
Turning to the outlook, the next three years should generate growth of 28% per year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 226% per annum growth forecast for the broader industry.
With this in consideration, its clear as to why BeiGene'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.
What We Can Learn From BeiGene'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.
As we suspected, our examination of BeiGene's 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.
A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for BeiGene with six simple checks on some of these key factors.
If you're unsure about the strength of BeiGene's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.