The Market Doesn't Like What It Sees From Ultragenyx Pharmaceutical Inc.'s (NASDAQ:RARE) Revenues Yet As Shares Tumble 43%
Ultragenyx Pharmaceutical Inc. (NASDAQ:RARE) shareholders won't be pleased to see that the share price has had a very rough month, dropping 43% and undoing the prior period's positive performance. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 53% loss during that time.
Since its price has dipped substantially, Ultragenyx Pharmaceutical's price-to-sales (or "P/S") ratio of 3x might make it look like a strong buy right now compared to the wider Biotechs industry in the United States, where around half of the companies have P/S ratios above 12x and even P/S above 85x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.
View our latest analysis for Ultragenyx Pharmaceutical
What Does Ultragenyx Pharmaceutical's Recent Performance Look Like?
With revenue growth that's inferior to most other companies of late, Ultragenyx Pharmaceutical has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. 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.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Ultragenyx Pharmaceutical.What Are Revenue Growth Metrics Telling Us About The Low P/S?
There's an inherent assumption that a company should far underperform the industry for P/S ratios like Ultragenyx Pharmaceutical's to be considered reasonable.
Retrospectively, the last year delivered an exceptional 21% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 84% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 29% per annum over the next three years. With the industry predicted to deliver 118% growth per annum, the company is positioned for a weaker revenue result.
With this information, we can see why Ultragenyx Pharmaceutical is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Final Word
Shares in Ultragenyx Pharmaceutical have plummeted and its P/S has followed suit. 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.
As we suspected, our examination of Ultragenyx Pharmaceutical'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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
There are also other vital risk factors to consider before investing and we've discovered 4 warning signs for Ultragenyx Pharmaceutical that you should be aware of.
If these risks are making you reconsider your opinion on Ultragenyx Pharmaceutical, explore our interactive list of high quality stocks to get an idea of what else is out there.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.