BeiGene, Ltd. (NASDAQ:BGNE) Shares Fly 27% But Investors Aren't Buying For Growth

BeiGene, Ltd. (NASDAQ:BGNE) shares have had a really impressive month, gaining 27% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 7.5% in the last twelve months.

Although its price has surged higher, BeiGene may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 6.3x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 11x and even P/S higher than 60x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for BeiGene

What Does BeiGene's Recent Performance Look Like?

BeiGene certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

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

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

Taking a look back first, we see that the company grew revenue by an impressive 71% last year. The strong recent performance means it was also able to grow revenue by 227% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 26% each year as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 123% per annum, which is noticeably more attractive.

In light of this, it's understandable that BeiGene's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On BeiGene's P/S

BeiGene's stock price has surged recently, but its but its P/S still remains modest. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of BeiGene's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with BeiGene, and understanding should be part of your investment process.

If these risks are making you reconsider your opinion on BeiGene, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.