Yahoo Finance Benign Growth For RedHill Biopharma Ltd. (NASDAQ:RDHL) Underpins Stock's 41% Plummet
To the annoyance of some shareholders, RedHill Biopharma Ltd. (NASDAQ:RDHL) shares are down a considerable 41% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 96% loss during that time.
After such a large drop in price, RedHill Biopharma may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.2x, since almost half of all companies in the Pharmaceuticals industry in the United States have P/S ratios greater than 3.1x and even P/S higher than 15x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.
See our latest analysis for RedHill Biopharma
What Does RedHill Biopharma's P/S Mean For Shareholders?
RedHill Biopharma could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on RedHill Biopharma.
Is There Any Revenue Growth Forecasted For RedHill Biopharma?
There's an inherent assumption that a company should far underperform the industry for P/S ratios like RedHill Biopharma's to be considered reasonable.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 17%. In spite of this, the company still managed to deliver immense revenue growth over the last three years. So while the company has done a great job in the past, it's somewhat concerning to see revenue growth decline so harshly.
Shifting to the future, estimates from the lone analyst covering the company suggest revenue growth is heading into negative territory, declining 22% each year over the next three years. That's not great when the rest of the industry is expected to grow by 31% per annum.
With this information, we are not surprised that RedHill Biopharma is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.
The Final Word
Having almost fallen off a cliff, RedHill Biopharma's share price has pulled its P/S way down as well. 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's clear to see that RedHill Biopharma maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. 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.
You should always think about risks. Case in point, we've spotted 6 warning signs for RedHill Biopharma you should be aware of, and 3 of them are potentially serious.
If you're unsure about the strength of RedHill Biopharma's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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.
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