Investors Appear Satisfied With Illumina, Inc.'s (NASDAQ:ILMN) Prospects As Shares Rocket 40%

Illumina, Inc. (NASDAQ:ILMN) shares have had a really impressive month, gaining 40% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 31% over that time.

Since its price has surged higher, when almost half of the companies in the United States' Life Sciences industry have price-to-sales ratios (or "P/S") below 3.8x, you may consider Illumina as a stock probably not worth researching with its 4.9x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

See our latest analysis for Illumina

What Does Illumina's P/S Mean For Shareholders?

Recent times haven't been great for Illumina as its revenue has been falling quicker than most other companies. One possibility is that the P/S ratio is high because investors think the company will turn things around completely and accelerate past most others in the industry. If not, then existing shareholders may be very nervous about the viability of the share price.

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

How Is Illumina's Revenue Growth Trending?

In order to justify its P/S ratio, Illumina would need to produce impressive growth in excess of the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 5.0%. Still, the latest three year period has seen an excellent 38% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 7.3% per year as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 4.7% per year, which is noticeably less attractive.

With this information, we can see why Illumina is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Illumina's P/S Mean For Investors?

Illumina's P/S is on the rise since its shares have risen strongly. 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.

Our look into Illumina shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Illumina with six simple checks on some of these key factors.

If you're unsure about the strength of Illumina'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.