With a price-to-sales (or "P/S") ratio of 3.3x Fennec Pharmaceuticals Inc. (NASDAQ:FENC) 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 9.2x and even P/S higher than 52x 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.
We've discovered 1 warning sign about Fennec Pharmaceuticals. View them for free.See our latest analysis for Fennec Pharmaceuticals
How Has Fennec Pharmaceuticals Performed Recently?
Recent times haven't been great for Fennec Pharmaceuticals as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
Keen to find out how analysts think Fennec Pharmaceuticals' future stacks up against the industry? In that case, our free report is a great place to start.How Is Fennec Pharmaceuticals' Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as depressed as Fennec Pharmaceuticals' 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 124%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.
Turning to the outlook, the next three years should generate growth of 31% each year as estimated by the five analysts watching the company. With the industry predicted to deliver 168% growth per annum, the company is positioned for a weaker revenue result.
With this information, we can see why Fennec Pharmaceuticals is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
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 expected, our analysis of Fennec Pharmaceuticals' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.
Having said that, be aware Fennec Pharmaceuticals is showing 1 warning sign in our investment analysis, you should know about.
If these risks are making you reconsider your opinion on Fennec Pharmaceuticals, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.