Yahoo Finance It's A Story Of Risk Vs Reward With NanoString Technologies, Inc. (NASDAQ:NSTG)
You may think that with a price-to-sales (or "P/S") ratio of 3.1x NanoString Technologies, Inc. (NASDAQ:NSTG) is a stock worth checking out, seeing as almost half of all the Life Sciences companies in the United States have P/S ratios greater than 4.3x and even P/S higher than 7x 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 limited.
View our latest analysis for NanoString Technologies
What Does NanoString Technologies' Recent Performance Look Like?
While the industry has experienced revenue growth lately, NanoString Technologies' revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on NanoString Technologies.
Do Revenue Forecasts Match The Low P/S Ratio?
In order to justify its P/S ratio, NanoString Technologies would need to produce sluggish growth that's trailing the industry.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 8.7%. Regardless, revenue has managed to lift by a handy 6.0% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to climb by 25% per year during the coming three years according to the seven analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 7.6% per year, which is noticeably less attractive.
In light of this, it's peculiar that NanoString Technologies' P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
The Bottom Line On NanoString Technologies' P/S
It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
To us, it seems NanoString Technologies currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.
And what about other risks? Every company has them, and we've spotted 2 warning signs for NanoString Technologies 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.
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