Insufficient Growth At Exagen Inc. (NASDAQ:XGN) Hampers Share Price

You may think that with a price-to-sales (or "P/S") ratio of 0.6x Exagen Inc. (NASDAQ:XGN) is definitely a stock worth checking out, seeing as almost half of all the Biotechs companies in the United States have P/S ratios greater than 11.5x and even P/S above 64x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

See our latest analysis for Exagen

What Does Exagen's P/S Mean For Shareholders?

Recent times haven't been great for Exagen as its revenue has been rising slower than most other companies. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Exagen will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Exagen?

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

Taking a look back first, we see that the company grew revenue by an impressive 20% last year. The latest three year period has also seen a 30% overall rise in revenue, aided extensively by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 13% per year during the coming three years according to the six analysts following the company. That's shaping up to be materially lower than the 207% each year growth forecast for the broader industry.

In light of this, it's understandable that Exagen'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 Exagen's P/S?

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 Exagen'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. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 3 warning signs for Exagen that you need to take into consideration.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com