BridgeBio Pharma, Inc.'s (NASDAQ:BBIO) price-to-sales (or "P/S") ratio of 20.9x might make it look like a strong sell right now compared to the Biotechs industry in the United States, where around half of the companies have P/S ratios below 11.6x and even P/S below 4x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

How BridgeBio Pharma Has Been Performing

With revenue growth that's superior to most other companies of late, BridgeBio Pharma has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

How Is BridgeBio Pharma's Revenue Growth Trending?

BridgeBio Pharma's 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.

Retrospectively, the last year delivered an explosive gain to the company's top line. The amazing performance means it was also able to grow revenue by 249% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 58% per annum during the coming three years according to the analysts following the company. With the industry predicted to deliver 139% growth each year, the company is positioned for a weaker revenue result.

In light of this, it's alarming that BridgeBio Pharma's P/S sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Bottom Line On BridgeBio Pharma's 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.

It comes as a surprise to see BridgeBio Pharma trade at such a high P/S given the revenue forecasts look less than stellar. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. At these price levels, investors should remain cautious, particularly if things don't improve.

Plus, you should also learn about these 4 warning signs we've spotted with BridgeBio Pharma (including 2 which are significant).

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.

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.