BridgeBio Pharma, Inc.'s (NASDAQ:BBIO) Popularity With Investors Is Under Threat From Overpricing

BridgeBio Pharma, Inc.'s (NASDAQ:BBIO) price-to-sales (or "P/S") ratio of 23.2x might make it look like a strong sell right now compared to the Biotechs industry in the United States, where around half of the companies have P/S ratios below 12.4x and even P/S below 4x are quite common. 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.

View our latest analysis for BridgeBio Pharma

What Does BridgeBio Pharma's Recent Performance Look Like?

Recent times have been advantageous for BridgeBio Pharma as its revenues have been rising faster than most other companies. 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 BridgeBio Pharma will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

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

Retrospectively, the last year delivered an exceptional 181% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 47% per year during the coming three years according to the analysts following the company. With the industry predicted to deliver 206% growth per annum, the company is positioned for a weaker revenue result.

With this in consideration, we believe it doesn't make sense that BridgeBio Pharma's P/S is outpacing its industry peers. 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. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Despite analysts forecasting some poorer-than-industry revenue growth figures for BridgeBio Pharma, this doesn't appear to be impacting the P/S in the slightest. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Having said that, be aware BridgeBio Pharma is showing 4 warning signs in our investment analysis, and 1 of those doesn't sit too well with us.

If you're unsure about the strength of BridgeBio Pharma'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.