Veracyte, Inc.'s (NASDAQ:VCYT) Price Is Right But Growth Is Lacking After Shares Rocket 42%

Veracyte, Inc. (NASDAQ:VCYT) shareholders have had their patience rewarded with a 42% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 33% in the last year.

In spite of the firm bounce in price, Veracyte may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 6.3x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 11.6x and even P/S higher than 63x aren't out of the ordinary. 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 Veracyte

How Has Veracyte Performed Recently?

Recent times haven't been great for Veracyte as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. 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 Veracyte.

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

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

If we review the last year of revenue growth, the company posted a terrific increase of 22%. The strong recent performance means it was also able to grow revenue by 154% in total over the last three years. 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 15% as estimated by the nine analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 134%, which is noticeably more attractive.

With this in consideration, its clear as to why Veracyte's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Despite Veracyte'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 Veracyte's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Veracyte you should know about.

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.