Pacific Biosciences of California, Inc. (NASDAQ:PACB) shareholders have had their patience rewarded with a 30% share price jump in the last month. But the last month did very little to improve the 79% share price decline over the last year.

In spite of the firm bounce in price, Pacific Biosciences of California may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.5x, since almost half of all companies in the Life Sciences industry in the United States have P/S ratios greater than 3.7x and even P/S higher than 6x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

What Does Pacific Biosciences of California's Recent Performance Look Like?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Pacific Biosciences of California has been doing quite well of late. One possibility is that the P/S ratio is low because investors think the company's revenue is going to fall away like everyone else's soon. Those who are bullish on Pacific Biosciences of California will be hoping that this isn't the case and the company continues to beat out the industry.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, Pacific Biosciences of California would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered an exceptional 29% gain to the company's top line. The latest three year period has also seen an excellent 78% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 19% per annum during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 7.0% each year growth forecast for the broader industry.

With this information, we find it odd that Pacific Biosciences of California is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Pacific Biosciences of California's P/S?

The latest share price surge wasn't enough to lift Pacific Biosciences of California's P/S close to the industry median. 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.

To us, it seems Pacific Biosciences of California currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Pacific Biosciences of California (at least 1 which is potentially serious), and understanding these should be part of your investment process.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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