Revenues Not Telling The Story For Ginkgo Bioworks Holdings, Inc. (NYSE:DNA) After Shares Rise 39%

Ginkgo Bioworks Holdings, Inc. (NYSE:DNA) shares have continued their recent momentum with a 39% gain in the last month alone. But the last month did very little to improve the 79% share price decline over the last year.

After such a large jump in price, you could be forgiven for thinking Ginkgo Bioworks Holdings is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3x, considering almost half the companies in the United States' Chemicals industry have P/S ratios below 1.2x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Ginkgo Bioworks Holdings

How Has Ginkgo Bioworks Holdings Performed Recently?

Recent times haven't been great for Ginkgo Bioworks Holdings as its revenue has been falling quicker than most other companies. Perhaps the market is predicting a change in fortunes for the company and is expecting them to blow past the rest of the industry, elevating the P/S ratio. If not, then existing shareholders may be very nervous about the viability of the share price.

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

Is There Enough Revenue Growth Forecasted For Ginkgo Bioworks Holdings?

In order to justify its P/S ratio, Ginkgo Bioworks Holdings would need to produce impressive growth in excess of the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 31%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 10% overall rise in revenue. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the six analysts covering the company suggest revenue growth is heading into negative territory, declining 3.7% over the next year. Meanwhile, the broader industry is forecast to expand by 2.0%, which paints a poor picture.

With this in mind, we find it intriguing that Ginkgo Bioworks Holdings' P/S is closely matching its industry peers. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

What Does Ginkgo Bioworks Holdings' P/S Mean For Investors?

Ginkgo Bioworks Holdings' P/S is on the rise since its shares have risen strongly. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

For a company with revenues that are set to decline in the context of a growing industry, Ginkgo Bioworks Holdings' P/S is much higher than we would've anticipated. Right now we aren't comfortable with the high P/S as the predicted future revenue decline likely to impact the positive sentiment that's propping up the P/S. At these price levels, investors should remain cautious, particularly if things don't improve.

Before you settle on your opinion, we've discovered 2 warning signs for Ginkgo Bioworks Holdings that you should be aware of.

If you're unsure about the strength of Ginkgo Bioworks Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.