You may think that with a price-to-sales (or "P/S") ratio of 9.3x Theravance Biopharma, Inc. (NASDAQ:TBPH) is a stock to avoid completely, seeing as almost half of all the Pharmaceuticals companies in the United States have P/S ratios under 3.2x and even P/S lower than 0.7x aren't out of the ordinary. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Theravance Biopharma

What Does Theravance Biopharma's P/S Mean For Shareholders?

Theravance Biopharma could be doing better as it's been growing revenue less than most other companies lately. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

Is There Enough Revenue Growth Forecasted For Theravance Biopharma?

The only time you'd be truly comfortable seeing a P/S as steep as Theravance Biopharma's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered a decent 5.5% gain to the company's revenues. However, this wasn't enough as the latest three year period has seen an unpleasant 34% overall drop in revenue. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 31% per year during the coming three years according to the four analysts following the company. With the industry predicted to deliver 53% growth per annum, the company is positioned for a weaker revenue result.

With this information, we find it concerning that Theravance Biopharma is trading at a P/S higher than the industry. 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 Theravance Biopharma's P/S

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

It comes as a surprise to see Theravance Biopharma trade at such a high P/S given the revenue forecasts look less than stellar. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Theravance Biopharma you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.