Benign Growth For PTC Therapeutics, Inc. (NASDAQ:PTCT) Underpins Its Share Price

With a price-to-sales (or "P/S") ratio of 5.6x PTC Therapeutics, Inc. (NASDAQ:PTCT) may be sending very bullish signals at the moment, given that almost half of all the Biotechs companies in the United States have P/S ratios greater than 13.1x and even P/S higher than 56x 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.

See our latest analysis for PTC Therapeutics

How PTC Therapeutics Has Been Performing

Recent times have been advantageous for PTC Therapeutics as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Keen to find out how analysts think PTC Therapeutics' 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?

In order to justify its P/S ratio, PTC Therapeutics would need to produce anemic growth that's substantially trailing the industry.

Taking a look back first, we see that the company grew revenue by an impressive 35% last year. The latest three year period has also seen an excellent 140% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 13% per annum as estimated by the analysts watching the company. That's shaping up to be materially lower than the 99% per annum growth forecast for the broader industry.

With this in consideration, its clear as to why PTC Therapeutics' 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 Does PTC Therapeutics' P/S Mean For Investors?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that PTC Therapeutics maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 5 warning signs for PTC Therapeutics you should be aware of, and 1 of them is a bit unpleasant.

If these risks are making you reconsider your opinion on PTC Therapeutics, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.