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.(納斯達克股票代碼:WVE)的股東們無疑很高興看到股價在上個月反彈了30%,儘管它仍在努力彌補最近的跌勢。再往前看,儘管在過去的30天中表現強勁,但過去十二個月中22%的增長並不算太糟糕。
在價格大幅上漲之後,與美國製藥行業的其他公司相比,Wave Life Sciences的7.3倍市銷率(或 “市銷率”)可能使其看起來像是強勁的拋售。在美國,大約一半的公司的市銷率低於3.1倍,甚至市盈率低於0.6倍也很常見。但是,市銷率可能很高是有原因的,需要進一步調查以確定其是否合理。
Wave Life Sciences的市銷率對股東意味着什麼?
最近對Wave Life Sciences來說是有利的,因爲其收入的增長速度快於大多數其他公司。市銷率可能很高,因爲投資者認爲這種強勁的收入表現將繼續下去。但是,如果不是這樣,投資者可能會陷入爲股票支付過多費用的困境。
想了解分析師如何看待Wave Life Sciences的未來與行業的對立嗎?在這種情況下,我們的免費報告是一個很好的起點。
收入預測與高市銷率相匹配嗎?
Wave Life Sciences的市銷率對於一家預計將實現非常強勁的增長,而且重要的是,其表現要好於行業的公司來說是典型的。