With a price-to-sales (or "P/S") ratio of 4.1x REGENXBIO Inc. (NASDAQ:RGNX) may be sending very bullish signals at the moment, given that almost half of all the Biotechs companies in the United States have P/S ratios greater than 10.2x and even P/S higher than 61x are not unusual. 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.
What Does REGENXBIO's P/S Mean For Shareholders?
While the industry has experienced revenue growth lately, REGENXBIO's revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed 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.
Want the full picture on analyst estimates for the company? Then our free report on REGENXBIO will help you uncover what's on the horizon.
Is There Any Revenue Growth Forecasted For REGENXBIO?
The only time you'd be truly comfortable seeing a P/S as depressed as REGENXBIO's is when the company's growth is on track to lag the industry decidedly.
Retrospectively, the last year delivered a frustrating 15% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 9.5% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Turning to the outlook, the next three years should generate growth of 67% per year as estimated by the ten analysts watching the company. With the industry predicted to deliver 113% growth each year, the company is positioned for a weaker revenue result.
With this information, we can see why REGENXBIO is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
What We Can Learn From REGENXBIO'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.
As we suspected, our examination of REGENXBIO's 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. It's hard to see the share price rising strongly in the near future under these circumstances.
You always need to take note of risks, for example - REGENXBIO has 3 warning signs we think you should be aware of.
If you're unsure about the strength of REGENXBIO's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. 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.
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