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

You may think that with a price-to-sales (or "P/S") ratio of 25.2x BridgeBio Pharma, Inc. (NASDAQ:BBIO) is a stock to avoid completely, seeing as almost half of all the Biotechs companies in the United States have P/S ratios under 10.5x and even P/S lower than 3x aren't out of the ordinary. 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?

With revenue growth that's superior to most other companies of late, BridgeBio Pharma has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

What Are Revenue Growth Metrics Telling Us About The High P/S?

In order to justify its P/S ratio, BridgeBio Pharma would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an explosive gain to the company's top line. The amazing performance means it was also able to grow revenue by 282% 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 52% per annum as estimated by the analysts watching the company. That's shaping up to be materially lower than the 112% per annum growth forecast for the broader industry.

In light of this, it's alarming that BridgeBio Pharma's P/S sits above the majority of other companies. 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.

What Does BridgeBio Pharma's P/S Mean For Investors?

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.

We've concluded that BridgeBio Pharma currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. At these price levels, investors should remain cautious, particularly if things don't improve.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for BridgeBio Pharma (2 are significant) you should be aware of.

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.