PTC Therapeutics, Inc.'s (NASDAQ:PTCT) Shares Bounce 26% But Its Business Still Trails The Industry

PTC Therapeutics, Inc. (NASDAQ:PTCT) shares have had a really impressive month, gaining 26% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 82%.

In spite of the firm bounce in price, PTC Therapeutics may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 2.6x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 9.2x and even P/S higher than 69x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

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Check out our latest analysis for PTC Therapeutics

What Does PTC Therapeutics' P/S Mean For Shareholders?

Recent times haven't been great for PTC Therapeutics as its revenue has been rising slower than most other companies. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. 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.

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.

Retrospectively, the last year delivered an exceptional 96% gain to the company's top line. Pleasingly, revenue has also lifted 185% in aggregate from three years ago, thanks to the last 12 months of growth. 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 bring diminished returns, with revenue decreasing 10% per annum as estimated by the analysts watching the company. That's not great when the rest of the industry is expected to grow by 118% per annum.

With this information, we are not surprised that PTC Therapeutics is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From PTC Therapeutics' P/S?

Shares in PTC Therapeutics have risen appreciably however, its P/S is still subdued. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of PTC Therapeutics' analyst forecasts revealed that its outlook for shrinking revenue is contributing 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. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 4 warning signs for PTC Therapeutics you should be aware of, and 2 of them make us uncomfortable.

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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.