What Mirum Pharmaceuticals, Inc.'s (NASDAQ:MIRM) P/S Is Not Telling You

It's not a stretch to say that Mirum Pharmaceuticals, Inc.'s (NASDAQ:MIRM) price-to-sales (or "P/S") ratio of 11.3x right now seems quite "middle-of-the-road" for companies in the Biotechs industry in the United States, where the median P/S ratio is around 13x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Mirum Pharmaceuticals

How Mirum Pharmaceuticals Has Been Performing

Recent times have been advantageous for Mirum Pharmaceuticals as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

Is There Some Revenue Growth Forecasted For Mirum Pharmaceuticals?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Mirum Pharmaceuticals' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 199% gain to the company's top line. Still, revenue has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 58% per year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 101% each year, which is noticeably more attractive.

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

The Bottom Line On Mirum Pharmaceuticals' 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 that Mirum Pharmaceuticals' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Mirum Pharmaceuticals is showing 1 warning sign in our investment analysis, you should know about.

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.