It's not a stretch to say that Quanterix Corporation's (NASDAQ:QTRX) price-to-sales (or "P/S") ratio of 3.8x right now seems quite "middle-of-the-road" for companies in the Life Sciences industry in the United States, where the median P/S ratio is around 3.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

What Does Quanterix's P/S Mean For Shareholders?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Quanterix has been doing quite well of late. Perhaps the market is expecting its current strong performance to taper off in accordance to the rest of the industry, which has kept the P/S contained. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

How Is Quanterix's Revenue Growth Trending?

In order to justify its P/S ratio, Quanterix would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 16%. The latest three year period has also seen a 17% overall rise in revenue, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 17% per year as estimated by the five analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 6.9% per annum, which is noticeably less attractive.

With this information, we find it interesting that Quanterix is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What Does Quanterix's P/S Mean For Investors?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Quanterix currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware Quanterix is showing 2 warning signs in our investment analysis, you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.