The Illumina, Inc. (NASDAQ:ILMN) share price has done very well over the last month, posting an excellent gain of 30%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 19% in the last twelve months.

Since its price has surged higher, you could be forgiven for thinking Illumina is a stock not worth researching with a price-to-sales ratios (or "P/S") of 4.3x, considering almost half the companies in the United States' Life Sciences industry have P/S ratios below 3.5x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

How Has Illumina Performed Recently?

While the industry has experienced revenue growth lately, Illumina's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

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

Do Revenue Forecasts Match The High P/S Ratio?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 2.3%. As a result, revenue from three years ago have also fallen 8.8% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 4.2% each year as estimated by the analysts watching the company. With the industry predicted to deliver 6.8% growth per annum, the company is positioned for a weaker revenue result.

In light of this, it's alarming that Illumina's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Bottom Line On Illumina's P/S

The large bounce in Illumina's shares has lifted the company's P/S handsomely. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

It comes as a surprise to see Illumina trade at such a high P/S given the revenue forecasts look less than stellar. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Illumina with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on Illumina, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.