Ultragenyx Pharmaceutical Inc.'s (NASDAQ:RARE) price-to-sales (or "P/S") ratio of 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 13x and even P/S above 64x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

How Has Ultragenyx Pharmaceutical Performed Recently?

With revenue growth that's inferior to most other companies of late, Ultragenyx Pharmaceutical has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered an exceptional 20% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 60% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 26% per year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 165% each year growth forecast for the broader industry.

In light of this, it's understandable that Ultragenyx Pharmaceutical'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 Ultragenyx Pharmaceutical's P/S

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.

We've established that Ultragenyx Pharmaceutical maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. 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.

You should always think about risks. Case in point, we've spotted 3 warning signs for Ultragenyx Pharmaceutical you should be aware of.

If you're unsure about the strength of Ultragenyx Pharmaceutical's 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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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.