Pacific Biosciences of California, Inc.'s (NASDAQ:PACB) P/S Is Still On The Mark Following 26% Share Price Bounce

Pacific Biosciences of California, Inc. (NASDAQ:PACB) shares have continued their recent momentum with a 26% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 27% in the last year.

Since its price has surged higher, when almost half of the companies in the United States' Life Sciences industry have price-to-sales ratios (or "P/S") below 3.5x, you may consider Pacific Biosciences of California as a stock probably not worth researching with its 4.9x 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.

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Check out our latest analysis for Pacific Biosciences of California

What Does Pacific Biosciences of California's Recent Performance Look Like?

Pacific Biosciences of California hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

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.

Is There Enough Revenue Growth Forecasted For Pacific Biosciences of California?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Pacific Biosciences of California's to be considered reasonable.

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 11%. Regardless, revenue has managed to lift by a handy 13% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 13% per annum during the coming three years according to the eight analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 6.6% each year, which is noticeably less attractive.

With this information, we can see why Pacific Biosciences of California is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Pacific Biosciences of California's P/S Mean For Investors?

The large bounce in Pacific Biosciences of California's shares has lifted the company's P/S handsomely. 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 Pacific Biosciences of California's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 2 warning signs for Pacific Biosciences of California that you should be aware of.

If you're unsure about the strength of Pacific Biosciences of California'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.