Ultragenyx Pharmaceutical Inc.'s (NASDAQ:RARE) price-to-sales (or "P/S") ratio of 9.3x might make it look like a buy right now compared to the Biotechs industry in the United States, where around half of the companies have P/S ratios above 12.2x and even P/S above 69x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

How Ultragenyx Pharmaceutical Has Been Performing

With revenue growth that's inferior to most other companies of late, Ultragenyx Pharmaceutical 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 this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

How Is Ultragenyx Pharmaceutical's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Ultragenyx Pharmaceutical's is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company grew revenue by an impressive 15% last year. The latest three year period has also seen an excellent 32% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 30% each year as estimated by the analysts watching the company. With the industry predicted to deliver 212% growth each year, the company is positioned for a weaker revenue result.

With this information, we can see why Ultragenyx Pharmaceutical is trading at a P/S lower than the industry. 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 Ultragenyx Pharmaceutical's P/S

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Ultragenyx Pharmaceutical 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. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 3 warning signs for Ultragenyx Pharmaceutical that 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.

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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.

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