The Price Is Right For Oxford Nanopore Technologies plc (LON:ONT)

Oxford Nanopore Technologies plc's (LON:ONT) price-to-sales (or "P/S") ratio of 8.1x might make it look like a strong sell right now compared to the Life Sciences industry in the United Kingdom, where around half of the companies have P/S ratios below 4x and even P/S below 2x are quite common. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Oxford Nanopore Technologies

How Oxford Nanopore Technologies Has Been Performing

With revenue growth that's inferior to most other companies of late, Oxford Nanopore Technologies has been relatively sluggish. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. 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 Oxford Nanopore Technologies will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Oxford Nanopore Technologies?

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

If we review the last year of revenue growth, the company posted a worthy increase of 3.4%. This was backed up an excellent period prior to see revenue up by 35% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the nine analysts covering the company suggest revenue should grow by 26% each year over the next three years. That's shaping up to be materially higher than the 12% per year growth forecast for the broader industry.

In light of this, it's understandable that Oxford Nanopore Technologies' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

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

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.

Our look into Oxford Nanopore Technologies shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Oxford Nanopore Technologies is showing 4 warning signs in our investment analysis, you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.