Akebia Therapeutics, Inc.'s (NASDAQ:AKBA) Price Is Right But Growth Is Lacking After Shares Rocket 41%

Despite an already strong run, Akebia Therapeutics, Inc. (NASDAQ:AKBA) shares have been powering on, with a gain of 41% in the last thirty days. The annual gain comes to 105% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, Akebia Therapeutics may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 2.2x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 12.7x and even P/S higher than 72x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

Check out our latest analysis for Akebia Therapeutics

How Akebia Therapeutics Has Been Performing

While the industry has experienced revenue growth lately, Akebia Therapeutics' revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Akebia Therapeutics.

How Is Akebia Therapeutics' Revenue Growth Trending?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Akebia Therapeutics' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 13% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 21% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 20% per annum as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 120% per year, which is noticeably more attractive.

With this in consideration, its clear as to why Akebia Therapeutics' 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.

What We Can Learn From Akebia Therapeutics' P/S?

Akebia Therapeutics' recent share price jump still sees fails to bring its P/S alongside the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As expected, our analysis of Akebia Therapeutics' 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.

It is also worth noting that we have found 3 warning signs for Akebia Therapeutics (1 is a bit unpleasant!) that you need to take into consideration.

If these risks are making you reconsider your opinion on Akebia Therapeutics, 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.