Unpleasant Surprises Could Be In Store For Alnylam Pharmaceuticals, Inc.'s (NASDAQ:ALNY) Shares

You may think that with a price-to-sales (or "P/S") ratio of 21.7x Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY) is a stock to avoid completely, seeing as almost half of all the Biotechs companies in the United States have P/S ratios under 12.3x and even P/S lower than 4x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Alnylam Pharmaceuticals

How Alnylam Pharmaceuticals Has Been Performing

Alnylam Pharmaceuticals certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

Keen to find out how analysts think Alnylam Pharmaceuticals' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Alnylam Pharmaceuticals?

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

Taking a look back first, we see that the company grew revenue by an impressive 30% last year. The strong recent performance means it was also able to grow revenue by 300% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 37% per annum as estimated by the analysts watching the company. With the industry predicted to deliver 99% growth each year, the company is positioned for a weaker revenue result.

With this information, we find it concerning that Alnylam Pharmaceuticals is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Final Word

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.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Alnylam Pharmaceuticals, this doesn't appear to be impacting the P/S in the slightest. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. At these price levels, investors should remain cautious, particularly if things don't improve.

Plus, you should also learn about these 3 warning signs we've spotted with Alnylam Pharmaceuticals (including 1 which is a bit concerning).

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.