Oxford Nanopore Technologies plc (LON:ONT) Looks Just Right With A 26% Price Jump

Oxford Nanopore Technologies plc (LON:ONT) shareholders have had their patience rewarded with a 26% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 45%.

After such a large jump in price, you could be forgiven for thinking Oxford Nanopore Technologies is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 8x, considering almost half the companies in the United Kingdom's Life Sciences industry have P/S ratios below 3.6x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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View our latest analysis for Oxford Nanopore Technologies

How Oxford Nanopore Technologies Has Been Performing

Oxford Nanopore Technologies could be doing better as it's been growing revenue less than most other companies lately. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Oxford Nanopore Technologies.

How Is Oxford Nanopore Technologies' Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Oxford Nanopore Technologies' to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 8.0% last year. The latest three year period has also seen an excellent 37% overall rise in revenue, aided somewhat 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 ten analysts covering the company suggest revenue should grow by 24% per year over the next three years. With the industry only predicted to deliver 13% per annum, the company is positioned for a stronger revenue result.

With this information, we can see why Oxford Nanopore Technologies is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Oxford Nanopore Technologies' P/S Mean For Investors?

Oxford Nanopore Technologies' P/S has grown nicely over the last month thanks to a handy boost in the share price. 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 Oxford Nanopore Technologies' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Oxford Nanopore Technologies, and understanding should be part of your investment process.

If these risks are making you reconsider your opinion on Oxford Nanopore Technologies, 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.