Myriad Genetics, Inc. (NASDAQ:MYGN) Held Back By Insufficient Growth Even After Shares Climb 28%

Explore Myriad Genetics's Fair Values from the Community and select yours

Myriad Genetics, Inc. (NASDAQ:MYGN) shareholders have had their patience rewarded with a 28% share price jump in the last month. But the last month did very little to improve the 80% share price decline over the last year.

In spite of the firm bounce in price, Myriad Genetics may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.6x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 8.7x and even P/S higher than 59x 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 Myriad Genetics

How Myriad Genetics Has Been Performing

Myriad Genetics could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

What Are Revenue Growth Metrics Telling Us About The Low P/S?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Myriad Genetics' to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 3.8% last year. Revenue has also lifted 24% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 4.9% each year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 114% each year growth forecast for the broader industry.

With this in consideration, its clear as to why Myriad Genetics' P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Myriad Genetics' P/S?

Even after such a strong price move, Myriad Genetics' P/S still trails the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Myriad Genetics maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Myriad Genetics 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.