Despite an already strong run, Natera, Inc. (NASDAQ:NTRA) shares have been powering on, with a gain of 32% in the last thirty days. The last month tops off a massive increase of 187% in the last year.

Following the firm bounce in price, Natera may be sending sell signals at present with a price-to-sales (or "P/S") ratio of 14.5x, when you consider almost half of the companies in the Biotechs industry in the United States have P/S ratios under 10.3x and even P/S lower than 4x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

What Does Natera's Recent Performance Look Like?

Natera could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

How Is Natera's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 55% gain to the company's top line. The latest three year period has also seen an excellent 171% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 14% each year over the next three years. With the industry predicted to deliver 122% growth per year, the company is positioned for a weaker revenue result.

In light of this, it's alarming that Natera's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. 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

Natera shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

We've concluded that Natera currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. At these price levels, investors should remain cautious, particularly if things don't improve.

Plus, you should also learn about these 2 warning signs we've spotted with Natera.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.