Market Participants Recognise Adaptive Biotechnologies Corporation's (NASDAQ:ADPT) Revenues Pushing Shares 27% Higher

Adaptive Biotechnologies Corporation (NASDAQ:ADPT) shares have continued their recent momentum with a 27% gain in the last month alone. Looking further back, the 17% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Following the firm bounce in price, Adaptive Biotechnologies' price-to-sales (or "P/S") ratio of 4.8x might make it look like a sell right now compared to the wider Life Sciences industry in the United States, where around half of the companies have P/S ratios below 3.6x and even P/S below 1.5x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

See our latest analysis for Adaptive Biotechnologies

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

With revenue that's retreating more than the industry's average of late, Adaptive Biotechnologies has been very sluggish. 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For Adaptive Biotechnologies?

The only time you'd be truly comfortable seeing a P/S as high as Adaptive Biotechnologies' is when the company's growth is on track to outshine the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 11%. Regardless, revenue has managed to lift by a handy 26% in aggregate from three years ago, thanks to the earlier period of growth. 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 eight analysts covering the company suggest revenue should grow by 12% over the next year. With the industry only predicted to deliver 5.1%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Adaptive Biotechnologies' P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Adaptive Biotechnologies shares have taken a big step in a northerly direction, but its P/S is elevated as a result. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

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. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Adaptive Biotechnologies is showing 2 warning signs in our investment analysis, you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.