You may think that with a price-to-sales (or "P/S") ratio of 6.2x Twist Bioscience Corporation (NASDAQ:TWST) is definitely a stock worth checking out, seeing as almost half of all the Biotechs companies in the United States have P/S ratios greater than 12.6x and even P/S above 63x 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 limited.

How Has Twist Bioscience Performed Recently?

Twist Bioscience could be doing better as it's been growing revenue less than most other companies lately. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. 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.

Is There Any Revenue Growth Forecasted For Twist Bioscience?

Twist Bioscience's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 22%. The strong recent performance means it was also able to grow revenue by 160% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 18% as estimated by the eight analysts watching the company. With the industry predicted to deliver 148% growth, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Twist Bioscience'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.

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.

We've established that Twist Bioscience 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. 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 Twist Bioscience.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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