Twist Bioscience Corporation (NASDAQ:TWST) Shares Fly 29% But Investors Aren't Buying For Growth

Twist Bioscience Corporation (NASDAQ:TWST) shareholders would be excited to see that the share price has had a great month, posting a 29% gain and recovering from prior weakness. The annual gain comes to 220% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, Twist Bioscience's price-to-sales (or "P/S") ratio of 8.6x might still make it look like a buy right now compared to the Biotechs industry in the United States, where around half of the companies have P/S ratios above 13.9x and even P/S above 65x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Twist Bioscience

What Does Twist Bioscience's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Twist Bioscience has been relatively sluggish. 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.

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

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

There's an inherent assumption that a company should underperform the industry for P/S ratios like Twist Bioscience's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 22% last year. Pleasingly, revenue has also lifted 146% 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 year should generate growth of 19% as estimated by the eight analysts watching the company. That's shaping up to be materially lower than the 145% growth forecast for the broader industry.

With this in consideration, its clear as to why Twist Bioscience'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.

The Final Word

Despite Twist Bioscience's share price climbing recently, its P/S still lags most other companies. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Twist Bioscience's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

Before you take the next step, you should know about the 3 warning signs for Twist Bioscience that we have uncovered.

If these risks are making you reconsider your opinion on Twist Bioscience, 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.