With A 34% Price Drop For Pacific Biosciences of California, Inc. (NASDAQ:PACB) You'll Still Get What You Pay For

Pacific Biosciences of California, Inc. (NASDAQ:PACB) shares have had a horrible month, losing 34% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 43% in that time.

In spite of the heavy fall in price, given around half the companies in the United States' Life Sciences industry have price-to-sales ratios (or "P/S") below 3.5x, you may still consider Pacific Biosciences of California as a stock to avoid entirely with its 10.3x 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 so lofty.

View our latest analysis for Pacific Biosciences of California

How Has Pacific Biosciences of California Performed Recently?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Pacific Biosciences of California has been doing quite well of late. Perhaps the market is expecting the company's future revenue growth to buck the trend of the industry, contributing to a higher P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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.

How Is Pacific Biosciences of California's Revenue Growth Trending?

In order to justify its P/S ratio, Pacific Biosciences of California would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 24%. The strong recent performance means it was also able to grow revenue by 113% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 42% each year as estimated by the analysts watching the company. With the industry only predicted to deliver 7.2% per year, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Pacific Biosciences of California's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

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

Pacific Biosciences of California's shares may have suffered, but its P/S remains high. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look into Pacific Biosciences of California shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Pacific Biosciences of California is showing 4 warning signs in our investment analysis, you should know about.

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.