Adaptive Biotechnologies Corporation's (NASDAQ:ADPT) 31% Jump Shows Its Popularity With Investors

Adaptive Biotechnologies Corporation (NASDAQ:ADPT) shares have continued their recent momentum with a 31% gain in the last month alone. The annual gain comes to 256% following the latest surge, making investors sit up and take notice.

After such a large jump in price, given around half the companies in the United States' Life Sciences industry have price-to-sales ratios (or "P/S") below 3.6x, you may consider Adaptive Biotechnologies as a stock to avoid entirely with its 12.7x P/S ratio. 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.

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See our latest analysis for Adaptive Biotechnologies

What Does Adaptive Biotechnologies' P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Adaptive Biotechnologies has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is Adaptive Biotechnologies' Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 22%. Revenue has also lifted 29% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 21% per annum during the coming three years according to the eight analysts following the company. That's shaping up to be materially higher than the 7.1% each year growth forecast for the broader industry.

With this information, we can see why Adaptive Biotechnologies 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.

The Final Word

Adaptive Biotechnologies' P/S has grown nicely over the last month thanks to a handy boost in the share price. 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 Adaptive Biotechnologies 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. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Having said that, be aware Adaptive Biotechnologies is showing 1 warning sign 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.