With a price-to-sales (or "P/S") ratio of 7.6x Amicus Therapeutics, Inc. (NASDAQ:FOLD) may be sending bullish signals at the moment, given that almost half of all the Biotechs companies in the United States have P/S ratios greater than 12x and even P/S higher than 69x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

What Does Amicus Therapeutics' P/S Mean For Shareholders?

Recent times haven't been great for Amicus Therapeutics as its revenue has been rising slower than most other companies. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

There's an inherent assumption that a company should underperform the industry for P/S ratios like Amicus Therapeutics' to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 30% last year. Pleasingly, revenue has also lifted 62% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the twelve analysts covering the company suggest revenue should grow by 26% per year over the next three years. With the industry predicted to deliver 140% growth each year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Amicus Therapeutics' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

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.

As we suspected, our examination of Amicus Therapeutics' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for Amicus Therapeutics you should be aware of.

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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