With Theravance Biopharma, Inc. (NASDAQ:TBPH) It Looks Like You'll Get What You Pay For

With a price-to-sales (or "P/S") ratio of 7.2x Theravance Biopharma, Inc. (NASDAQ:TBPH) may be sending very bearish signals at the moment, given that almost half of all the Pharmaceuticals companies in the United States have P/S ratios under 3x and even P/S lower than 0.8x 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 lofty.

View our latest analysis for Theravance Biopharma

How Theravance Biopharma Has Been Performing

Recent times haven't been great for Theravance Biopharma as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is Theravance Biopharma's Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 21% last year. Still, revenue has fallen 3.3% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 22% per annum as estimated by the five analysts watching the company. That's shaping up to be materially higher than the 19% each year growth forecast for the broader industry.

With this in mind, it's not hard to understand why Theravance Biopharma's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Theravance Biopharma's P/S

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Theravance Biopharma's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Theravance Biopharma with six simple checks on some of these key factors.

If these risks are making you reconsider your opinion on Theravance Biopharma, 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.