A Piece Of The Puzzle Missing From Personalis, Inc.'s (NASDAQ:PSNL) 131% Share Price Climb

Personalis, Inc. (NASDAQ:PSNL) shareholders have had their patience rewarded with a 131% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 27% in the last year.

Even after such a large jump in price, Personalis' price-to-sales (or "P/S") ratio of 2x might still make it look like a buy right now compared to the Life Sciences industry in the United States, where around half of the companies have P/S ratios above 3.5x and even P/S above 6x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Personalis

How Has Personalis Performed Recently?

Personalis certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. It might be that many expect the strong revenue performance to degrade substantially, possibly more than the industry, which has repressed the P/S. Those who are bullish on Personalis will be hoping that this isn't the case and the company continues to beat out the industry.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Personalis.

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

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

Taking a look back first, we see that the company managed to grow revenues by a handy 8.0% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 7.7% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 24% each year during the coming three years according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 7.0% each year, which is noticeably less attractive.

With this information, we find it odd that Personalis is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

Personalis' stock price has surged recently, but its but its P/S still remains modest. 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.

To us, it seems Personalis currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Personalis (of which 1 is concerning!) you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com