Revenues Not Telling The Story For 10x Genomics, Inc. (NASDAQ:TXG) After Shares Rise 31%

10x Genomics, Inc. (NASDAQ:TXG) shares have had a really impressive month, gaining 31% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 45% over that time.

Even after such a large jump in price, it's still not a stretch to say that 10x Genomics' price-to-sales (or "P/S") ratio of 2.1x right now seems quite "middle-of-the-road" compared to the Life Sciences industry in the United States, where the median P/S ratio is around 2.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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See our latest analysis for 10x Genomics

What Does 10x Genomics' P/S Mean For Shareholders?

10x Genomics hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think 10x Genomics' future stacks up against the industry? In that case, our free report is a great place to start.

How Is 10x Genomics' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like 10x Genomics' to be considered reasonable.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Regardless, revenue has managed to lift by a handy 25% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should generate growth of 2.9% per annum as estimated by the analysts watching the company. With the industry predicted to deliver 7.2% growth per annum, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that 10x Genomics' P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From 10x Genomics' P/S?

10x Genomics appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

Given that 10x Genomics' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.

We don't want to rain on the parade too much, but we did also find 2 warning signs for 10x Genomics that you need to be mindful of.

If you're unsure about the strength of 10x Genomics' 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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