You may think that with a price-to-sales (or "P/S") ratio of 8.3x Sarepta Therapeutics, Inc. (NASDAQ:SRPT) 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 77x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

What Does Sarepta Therapeutics' P/S Mean For Shareholders?

Sarepta Therapeutics could be doing better as it's been growing revenue less than most other companies lately. 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.

Is There Any Revenue Growth Forecasted For Sarepta Therapeutics?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Sarepta Therapeutics' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 50%. The strong recent performance means it was also able to grow revenue by 151% 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 39% per year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 145% each year growth forecast for the broader industry.

With this in consideration, its clear as to why Sarepta Therapeutics' 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 Sarepta Therapeutics' P/S Mean For Investors?

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Sarepta Therapeutics' analyst forecasts revealed that its inferior revenue outlook is contributing 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Sarepta Therapeutics (at least 1 which shouldn't be ignored), and understanding them should be part of your investment process.

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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