Yahoo Finance There Is A Reason Exact Sciences Corporation's (NASDAQ:EXAS) Price Is Undemanding
With a price-to-sales (or "P/S") ratio of 6.1x Exact Sciences Corporation (NASDAQ:EXAS) may be sending bullish signals at the moment, given that almost half of all the Biotechs companies in the United States have P/S ratios greater than 11.5x and even P/S higher than 56x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
View our latest analysis for Exact Sciences
What Does Exact Sciences' P/S Mean For Shareholders?
Recent times haven't been great for Exact Sciences 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 Exact Sciences will help you uncover what's on the horizon.
How Is Exact Sciences' Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as low as Exact Sciences' is when the company's growth is on track to lag the industry.
Taking a look back first, we see that the company grew revenue by an impressive 18% last year. The latest three year period has also seen an excellent 138% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.
Looking ahead now, revenue is anticipated to climb by 13% per year during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 91% per annum, which is noticeably more attractive.
With this in consideration, its clear as to why Exact Sciences' P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Key Takeaway
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.
As we suspected, our examination of Exact Sciences' 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
And what about other risks? Every company has them, and we've spotted 2 warning signs for Exact Sciences 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.
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