Yahoo Finance Benign Growth For Akebia Therapeutics, Inc. (NASDAQ:AKBA) Underpins Its Share Price
With a price-to-sales (or "P/S") ratio of 0.4x Akebia Therapeutics, Inc. (NASDAQ:AKBA) may be sending very bullish signals at the moment, given that almost half of all the Biotechs companies in the United States have P/S ratios greater than 11.6x and even P/S higher than 52x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.
See our latest analysis for Akebia Therapeutics
How Akebia Therapeutics Has Been Performing
Recent times haven't been great for Akebia Therapeutics as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. 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 Akebia Therapeutics will help you uncover what's on the horizon.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
The only time you'd be truly comfortable seeing a P/S as depressed as Akebia Therapeutics' is when the company's growth is on track to lag the industry decidedly.
If we review the last year of revenue growth, the company posted a terrific increase of 37%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 13% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to slump, contracting by 36% per year during the coming three years according to the two analysts following the company. Meanwhile, the broader industry is forecast to expand by 97% each year, which paints a poor picture.
With this in consideration, we find it intriguing that Akebia Therapeutics' P/S is closely matching its industry peers. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.
What Does Akebia Therapeutics' P/S Mean For Investors?
We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Akebia Therapeutics' P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, Akebia Therapeutics' poor outlook justifies its low P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Akebia Therapeutics (2 are a bit unpleasant) you should be aware of.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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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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