Shareholders Should Be Pleased With Azenta, Inc.'s (NASDAQ:AZTA) Price

When you see that almost half of the companies in the Life Sciences industry in the United States have price-to-sales ratios (or "P/S") below 3.9x, Azenta, Inc. (NASDAQ:AZTA) looks to be giving off some sell signals with its 5.1x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Azenta

How Azenta Has Been Performing

With its revenue growth in positive territory compared to the declining revenue of most other companies, Azenta has been doing quite well of late. Perhaps the market is expecting the company's future revenue growth to buck the trend of the industry, contributing to a higher P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Do Revenue Forecasts Match The High P/S Ratio?

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

Retrospectively, the last year delivered a decent 7.9% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 116% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 11% during the coming year according to the seven analysts following the company. That's shaping up to be materially higher than the 2.2% growth forecast for the broader industry.

With this information, we can see why Azenta 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 Bottom Line On Azenta's P/S

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.

We've established that Azenta 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. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Azenta that you should be aware of.

If you're unsure about the strength of Azenta's 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.