Exelixis, Inc.'s (NASDAQ:EXEL) Revenues Are Not Doing Enough For Some Investors

You may think that with a price-to-sales (or "P/S") ratio of 4.2x Exelixis, Inc. (NASDAQ:EXEL) is definitely a stock worth checking out, seeing as almost half of all the Biotechs companies in the United States have P/S ratios greater than 12.3x and even P/S above 54x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Exelixis

What Does Exelixis' P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Exelixis has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Exelixis will help you uncover what's on the horizon.

How Is Exelixis' Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a worthy increase of 8.3%. The latest three year period has also seen an excellent 85% overall rise in revenue, aided somewhat by its short-term performance. 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 12% per year during the coming three years according to the analysts following the company. With the industry predicted to deliver 240% growth per annum, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Exelixis' 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 Key Takeaway

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.

As we suspected, our examination of Exelixis' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

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

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.