Pacific Biosciences of California, Inc. (NASDAQ:PACB) Might Not Be As Mispriced As It Looks After Plunging 26%

Unfortunately for some shareholders, the Pacific Biosciences of California, Inc. (NASDAQ:PACB) share price has dived 26% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 77% share price decline.

After such a large drop in price, Pacific Biosciences of California may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 2.7x, considering almost half of all companies in the Life Sciences industry in the United States have P/S ratios greater than 3.4x and even P/S higher than 7x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Pacific Biosciences of California

How Has Pacific Biosciences of California Performed Recently?

Recent revenue growth for Pacific Biosciences of California has been in line with the industry. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. Those who are bullish on Pacific Biosciences of California will be hoping that this isn't the case.

Want the full picture on analyst estimates for the company? Then our free report on Pacific Biosciences of California will help you uncover what's on the horizon.

Do Revenue Forecasts Match The Low P/S Ratio?

Pacific Biosciences of California's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. However, a few strong years before that means that it was still able to grow revenue by an impressive 42% in total over the last three years. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 20% each year over the next three years. That's shaping up to be materially higher than the 6.6% per annum growth forecast for the broader industry.

With this in consideration, we find it intriguing that Pacific Biosciences of California's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Pacific Biosciences of California's P/S?

Pacific Biosciences of California's P/S has taken a dip along with its share price. 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.

Pacific Biosciences of California's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

Before you take the next step, you should know about the 3 warning signs for Pacific Biosciences of California that we have uncovered.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.