Revenues Not Telling The Story For Illumina, Inc. (NASDAQ:ILMN)

When you see that almost half of the companies in the Life Sciences industry in the United States have price-to-sales ratios (or "P/S") below 3.7x, Illumina, Inc. (NASDAQ:ILMN) looks to be giving off some sell signals with its 4.7x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

View our latest analysis for Illumina

How Illumina Has Been Performing

Illumina's negative revenue growth of late has neither been better nor worse than most other companies. One possibility is that the P/S ratio is high because investors think the company can turn things around and break free from the broader downward trend in revenue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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.

Is There Enough Revenue Growth Forecasted For Illumina?

Illumina's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 1.8%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 39% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 6.4% per annum over the next three years. That's shaping up to be similar to the 6.5% each year growth forecast for the broader industry.

In light of this, it's curious that Illumina's P/S sits above the majority of other companies. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Illumina's P/S

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Given Illumina's future revenue forecasts are in line with the wider industry, the fact that it trades at an elevated P/S is somewhat surprising. The fact that the revenue figures aren't setting the world alight has us doubtful that the company's elevated P/S can be sustainable for the long term. A positive change is needed in order to justify the current price-to-sales ratio.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Illumina with six simple checks.

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.