You may think that with a price-to-sales (or "P/S") ratio of 7.7x Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) is a stock worth checking out, seeing as almost half of all the Biotechs companies in the United States have P/S ratios greater than 13.2x and even P/S higher than 66x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

How Ionis Pharmaceuticals Has Been Performing

With revenue growth that's inferior to most other companies of late, Ionis Pharmaceuticals has been relatively sluggish. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Ionis Pharmaceuticals' is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 34% gain to the company's top line. Revenue has also lifted 8.0% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 12% each year during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 166% per year, which is noticeably more attractive.

With this in consideration, its clear as to why Ionis Pharmaceuticals' 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.

What Does Ionis Pharmaceuticals' P/S Mean For Investors?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As expected, our analysis of Ionis Pharmaceuticals' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor 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. The company will need a change of fortune to justify the P/S rising higher in the future.

Plus, you should also learn about these 2 warning signs we've spotted with Ionis Pharmaceuticals.

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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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.