Why Investors Shouldn't Be Surprised By Adaptive Biotechnologies Corporation's (NASDAQ:ADPT) 26% Share Price Surge

The Adaptive Biotechnologies Corporation (NASDAQ:ADPT) share price has done very well over the last month, posting an excellent gain of 26%. The annual gain comes to 214% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, given around half the companies in the United States' Life Sciences industry have price-to-sales ratios (or "P/S") below 2.8x, you may consider Adaptive Biotechnologies as a stock to avoid entirely with its 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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View our latest analysis for Adaptive Biotechnologies

What Does Adaptive Biotechnologies' Recent Performance Look Like?

Adaptive Biotechnologies certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

Do Revenue Forecasts Match The High P/S Ratio?

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 worthy increase of 5.1%. The latest three year period has also seen a 16% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 22% per year over the next three years. With the industry only predicted to deliver 6.4% each year, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Adaptive Biotechnologies' 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.

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

The strong share price surge has lead to Adaptive Biotechnologies' P/S soaring as well. 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.

As we suspected, our examination of Adaptive Biotechnologies' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 3 warning signs we've spotted with Adaptive Biotechnologies .

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.