Wave Life Sciences Ltd. (NASDAQ:WVE) shareholders are no doubt pleased to see that the share price has bounced 30% in the last month, although it is still struggling to make up recently lost ground. Looking further back, the 22% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.
After such a large jump in price, Wave Life Sciences' price-to-sales (or "P/S") ratio of 7.3x might make it look like a strong sell right now compared to other companies in the Pharmaceuticals industry in the United States, where around half of the companies have P/S ratios below 3.1x and even P/S below 0.6x are quite common. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.
What Does Wave Life Sciences' P/S Mean For Shareholders?
Recent times have been advantageous for Wave Life Sciences as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.
Keen to find out how analysts think Wave Life Sciences' future stacks up against the industry? In that case, our free report is a great place to start.
Do Revenue Forecasts Match The High P/S Ratio?
Wave Life Sciences' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.
Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. The amazing performance means it was also able to deliver huge revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 12% per annum as estimated by the six analysts watching the company. Meanwhile, the broader industry is forecast to expand by 46% per year, which paints a poor picture.
In light of this, it's alarming that Wave Life Sciences' P/S sits above the majority of other companies. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh heavily on the share price eventually.
The Final Word
The strong share price surge has lead to Wave Life Sciences' P/S soaring as well. 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.
For a company with revenues that are set to decline in the context of a growing industry, Wave Life Sciences' P/S is much higher than we would've anticipated. In cases like this where we see revenue decline on the horizon, we suspect the share price is at risk of following suit, bringing back the high P/S into the realms of suitability. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.
Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Wave Life Sciences (1 is a bit unpleasant) you should be aware of.
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.
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.
Wave Life Sciences Ltd.(纳斯达克股票代码:WVE)的股东们无疑很高兴看到股价在上个月反弹了30%,尽管它仍在努力弥补最近的跌势。再往前看,尽管在过去的30天中表现强劲,但过去十二个月中22%的增长并不算太糟糕。
在价格大幅上涨之后,与美国制药行业的其他公司相比,Wave Life Sciences的7.3倍市销率(或 “市销率”)可能使其看起来像是强劲的抛售。在美国,大约一半的公司的市销率低于3.1倍,甚至市盈率低于0.6倍也很常见。但是,市销率可能很高是有原因的,需要进一步调查以确定其是否合理。
Wave Life Sciences的市销率对股东意味着什么?
最近对Wave Life Sciences来说是有利的,因为其收入的增长速度快于大多数其他公司。市销率可能很高,因为投资者认为这种强劲的收入表现将继续下去。但是,如果不是这样,投资者可能会陷入为股票支付过多费用的困境。
想了解分析师如何看待Wave Life Sciences的未来与行业的对立吗?在这种情况下,我们的免费报告是一个很好的起点。
收入预测与高市销率相匹配吗?
Wave Life Sciences的市销率对于一家预计将实现非常强劲的增长,而且重要的是,其表现要好于行业的公司来说是典型的。