PTC Therapeutics, Inc.'s (NASDAQ:PTCT) Price Is Right But Growth Is Lacking After Shares Rocket 29%

Despite an already strong run, PTC Therapeutics, Inc. (NASDAQ:PTCT) shares have been powering on, with a gain of 29% in the last thirty days. The annual gain comes to 108% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, PTC Therapeutics' price-to-sales (or "P/S") ratio of 4.5x might still make it look like a strong buy right now compared to the wider Biotechs industry in the United States, where around half of the companies have P/S ratios above 10.6x and even P/S above 65x are quite common. 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.

View our latest analysis for PTC Therapeutics

What Does PTC Therapeutics' Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, PTC Therapeutics has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could 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.

How Is PTC Therapeutics' Revenue Growth Trending?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like PTC Therapeutics' to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 13%. Pleasingly, revenue has also lifted 83% in aggregate from three years ago, partly thanks to the last 12 months of growth. 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 2.5% per annum as estimated by the analysts watching the company. That's shaping up to be materially lower than the 122% per annum growth forecast for the broader industry.

With this information, we can see why PTC Therapeutics is trading at a P/S lower than the industry. 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?

PTC Therapeutics' recent share price jump still sees fails to bring its P/S alongside the industry median. 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.

As expected, our analysis of PTC Therapeutics' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with PTC Therapeutics (at least 1 which is a bit unpleasant), and understanding these should be part of your investment process.

If you're unsure about the strength of PTC Therapeutics' 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.