BeiGene, Ltd. (NASDAQ:BGNE) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Although its price has surged higher, BeiGene's price-to-sales (or "P/S") ratio of 6.7x might still make it look like a buy right now compared to the Biotechs industry in the United States, where around half of the companies have P/S ratios above 11.6x and even P/S above 63x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

How Has BeiGene Performed Recently?

Recent times haven't been great for BeiGene as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of 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.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as BeiGene's is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 71%. The latest three year period has also seen an excellent 227% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 26% per annum during the coming three years according to the analysts following the company. With the industry predicted to deliver 138% growth per year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that BeiGene's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From BeiGene's P/S?

BeiGene's stock price has surged recently, but its but its P/S still remains modest. 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.

As we suspected, our examination of BeiGene's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

Before you take the next step, you should know about the 1 warning sign for BeiGene that we have uncovered.

If these risks are making you reconsider your opinion on BeiGene, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.