Revenues Tell The Story For argenx SE (EBR:ARGX)

argenx SE's (EBR:ARGX) price-to-sales (or "P/S") ratio of 34.3x might make it look like a strong sell right now compared to the Biotechs industry in Belgium, where around half of the companies have P/S ratios below 9.4x and even P/S below 3x are quite common. 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.

See our latest analysis for argenx

How Has argenx Performed Recently?

argenx 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. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on argenx will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For argenx?

In order to justify its P/S ratio, argenx would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 68% last year. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 59% per year during the coming three years according to the analysts following the company. With the industry only predicted to deliver 36% per year, the company is positioned for a stronger revenue result.

With this information, we can see why argenx is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

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 established that argenx maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Biotechs industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for argenx with six simple checks will allow you to discover any risks that could be an issue.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.