Incyte Corporation's (NASDAQ:INCY) Price Is Right But Growth Is Lacking After Shares Rocket 26%

Explore Incyte's Fair Values from the Community and select yours

Despite an already strong run, Incyte Corporation (NASDAQ:INCY) shares have been powering on, with a gain of 26% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 39% in the last year.

Even after such a large jump in price, Incyte may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 3.7x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 8.4x and even P/S higher than 66x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

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See our latest analysis for Incyte

How Incyte Has Been Performing

Incyte could be doing better as it's been growing revenue less than most other companies lately. 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 Incyte will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Incyte?

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

Taking a look back first, we see that the company grew revenue by an impressive 19% last year. The strong recent performance means it was also able to grow revenue by 38% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 8.9% each year over the next three years. With the industry predicted to deliver 113% growth per annum, the company is positioned for a weaker revenue result.

With this information, we can see why Incyte is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Incyte's P/S?

Even after such a strong price move, Incyte's P/S still trails the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Incyte's 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example - Incyte has 1 warning sign we think 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.