Why Investors Shouldn't Be Surprised By Twist Bioscience Corporation's (NASDAQ:TWST) 26% Share Price Plunge

Twist Bioscience Corporation (NASDAQ:TWST) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.

After such a large drop in price, Twist Bioscience may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 7x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 9.6x and even P/S higher than 51x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Twist Bioscience

What Does Twist Bioscience's P/S Mean For Shareholders?

Twist Bioscience could be doing better as it's been growing revenue less than most other companies lately. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. 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?

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

Retrospectively, the last year delivered an exceptional 26% gain to the company's top line. Pleasingly, revenue has also lifted 126% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 19% each year as estimated by the eleven analysts watching the company. With the industry predicted to deliver 129% growth per annum, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Twist Bioscience's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Twist Bioscience's P/S?

Twist Bioscience's recently weak share price has pulled its P/S back below other Biotechs companies. 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.

We've established that Twist Bioscience maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 2 warning signs for Twist Bioscience that you need to take into consideration.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.