Some Confidence Is Lacking In Theravance Biopharma, Inc.'s (NASDAQ:TBPH) P/S

You may think that with a price-to-sales (or "P/S") ratio of 8.1x Theravance Biopharma, Inc. (NASDAQ:TBPH) is a stock to avoid completely, seeing as almost half of all the Pharmaceuticals companies in the United States have P/S ratios under 3.2x and even P/S lower than 0.7x aren't out of the ordinary. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Theravance Biopharma

What Does Theravance Biopharma's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Theravance Biopharma has been relatively sluggish. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

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

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

In order to justify its P/S ratio, Theravance Biopharma would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a decent 5.5% gain to the company's revenues. However, this wasn't enough as the latest three year period has seen an unpleasant 34% overall drop in revenue. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 31% each year as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 52% each year, which is noticeably more attractive.

With this information, we find it concerning that Theravance Biopharma is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does Theravance Biopharma's P/S Mean For Investors?

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.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Theravance Biopharma, this doesn't appear to be impacting the P/S in the slightest. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 1 warning sign for Theravance Biopharma you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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.