Improved Revenues Required Before Ultragenyx Pharmaceutical Inc. (NASDAQ:RARE) Shares Find Their Feet

You may think that with a price-to-sales (or "P/S") ratio of 7.4x Ultragenyx Pharmaceutical Inc. (NASDAQ:RARE) is a stock worth checking out, seeing as almost half of all the Biotechs companies in the United States have P/S ratios greater than 11.5x and even P/S higher than 50x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Ultragenyx Pharmaceutical

How Ultragenyx Pharmaceutical Has Been Performing

Ultragenyx Pharmaceutical could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Ultragenyx Pharmaceutical will help you uncover what's on the horizon.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Ultragenyx Pharmaceutical would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 3.4% last year. The latest three year period has also seen an excellent 250% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 22% per year during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 92% each year, which is noticeably more attractive.

With this in consideration, its clear as to why Ultragenyx Pharmaceutical's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Ultragenyx Pharmaceutical's P/S Mean For Investors?

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As expected, our analysis of Ultragenyx Pharmaceutical's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Ultragenyx Pharmaceutical, and understanding these should be part of your investment process.

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.

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

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.