With Oxford Nanopore Technologies plc (LON:ONT) It Looks Like You'll Get What You Pay For

When you see that almost half of the companies in the Life Sciences industry in the United Kingdom have price-to-sales ratios (or "P/S") below 4x, Oxford Nanopore Technologies plc (LON:ONT) looks to be giving off strong sell signals with its 10.2x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Oxford Nanopore Technologies

How Oxford Nanopore Technologies Has Been Performing

Recent times have been advantageous for Oxford Nanopore Technologies as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

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 terrific increase of 49%. The strong recent performance means it was also able to grow revenue by 281% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the nine analysts covering the company suggest revenue should grow by 14% per annum over the next three years. With the industry only predicted to deliver 11% per year, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Oxford Nanopore Technologies' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Oxford Nanopore Technologies' P/S

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Oxford Nanopore Technologies maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Life Sciences industry, as expected. 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.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Oxford Nanopore Technologies that you need to be mindful of.

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.