With a price-to-sales (or "P/S") ratio of 22.9x Blueprint Medicines Corporation (NASDAQ:BPMC) may be sending very bearish signals at the moment, given that almost half of all the Biotechs companies in the United States have P/S ratios under 13.5x and even P/S lower than 4x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

Check out our latest analysis for Blueprint Medicines

What Does Blueprint Medicines' P/S Mean For Shareholders?

Blueprint Medicines could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

How Is Blueprint Medicines' Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 21% decrease to the company's top line. As a result, revenue from three years ago have also fallen 73% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 51% each year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 231% per annum growth forecast for the broader industry.

In light of this, it's alarming that Blueprint Medicines' 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. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Key Takeaway

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've concluded that Blueprint Medicines currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. 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.

It is also worth noting that we have found 1 warning sign for Blueprint Medicines that you need to take into consideration.

If these risks are making you reconsider your opinion on Blueprint Medicines, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.