You may think that with a price-to-sales (or "P/S") ratio of 4.2x BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX) is definitely a stock worth checking out, seeing as almost half of all the Biotechs companies in the United States have P/S ratios greater than 11.4x and even P/S above 64x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

What Does BioCryst Pharmaceuticals' P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, BioCryst Pharmaceuticals has been relatively sluggish. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered an exceptional 23% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 19% each year as estimated by the ten analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 208% each year, which is noticeably more attractive.

With this in consideration, its clear as to why BioCryst Pharmaceuticals' P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On BioCryst Pharmaceuticals' 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.

We've established that BioCryst Pharmaceuticals maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with BioCryst Pharmaceuticals (at least 1 which is potentially serious), and understanding them should be part of your investment process.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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