Investors Appear Satisfied With Codexis, Inc.'s (NASDAQ:CDXS) Prospects

There wouldn't be many who think Codexis, Inc.'s (NASDAQ:CDXS) price-to-sales (or "P/S") ratio of 3x is worth a mention when the median P/S for the Life Sciences industry in the United States is similar at about 3.1x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Codexis

How Has Codexis Performed Recently?

Recent times haven't been great for Codexis as its revenue has been falling quicker than most other companies. Perhaps the market is expecting future revenue performance to begin matching the rest of the industry, which has kept the P/S from declining. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. Or at the very least, you'd be hoping it doesn't keep underperforming if your plan is to pick up some stock while it's not in favour.

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

How Is Codexis' Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Codexis' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 36% decrease to the company's top line. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 6.4% per annum as estimated by the seven analysts watching the company. With the industry predicted to deliver 6.9% growth each year, the company is positioned for a comparable revenue result.

With this information, we can see why Codexis is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Bottom Line On Codexis' P/S

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

A Codexis' P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Life Sciences industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Codexis that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.