Risks To Shareholder Returns Are Elevated At These Prices For TG Therapeutics, Inc. (NASDAQ:TGTX)

With a price-to-sales (or "P/S") ratio of 16.3x TG Therapeutics, Inc. (NASDAQ:TGTX) may be sending very bearish signals at the moment, given that almost half of all the Biotechs companies in the United States have P/S ratios under 9.6x and even P/S lower than 3x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for TG Therapeutics

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

Recent times haven't been great for TG Therapeutics 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. If not, then existing shareholders may be very nervous about the viability of the share price.

Keen to find out how analysts think TG Therapeutics' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For TG Therapeutics?

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

Retrospectively, the last year delivered an exceptional 40% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 53% per annum during the coming three years according to the six analysts following the company. With the industry predicted to deliver 129% growth per year, the company is positioned for a weaker revenue result.

With this in consideration, we believe it doesn't make sense that TG Therapeutics' P/S is outpacing its industry peers. 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.

The Final Word

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.

It comes as a surprise to see TG Therapeutics trade at such a high P/S given the revenue forecasts look less than stellar. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. At these price levels, investors should remain cautious, particularly if things don't improve.

Before you settle on your opinion, we've discovered 1 warning sign for TG Therapeutics that you should be aware of.

If you're unsure about the strength of TG 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.