Positive Sentiment Still Eludes Akebia Therapeutics, Inc. (NASDAQ:AKBA) Following 27% Share Price Slump

Akebia Therapeutics, Inc. (NASDAQ:AKBA) shares have retraced a considerable 27% in the last month, reversing a fair amount of their solid recent performance. The good news is that in the last year, the stock has shone bright like a diamond, gaining 188%.

After such a large drop in price, Akebia Therapeutics may be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of -3.5x, since almost half of all companies in the United States have P/E ratios greater than 16x and even P/E's higher than 31x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Akebia Therapeutics certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Akebia Therapeutics

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

Is There Any Growth For Akebia Therapeutics?

The only time you'd be truly comfortable seeing a P/E as depressed as Akebia Therapeutics' is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 81%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 14% each year over the next three years. That's shaping up to be materially higher than the 11% per year growth forecast for the broader market.

In light of this, it's peculiar that Akebia Therapeutics' P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Akebia Therapeutics' P/E

Shares in Akebia Therapeutics have plummeted and its P/E is now low enough to touch the ground. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Akebia Therapeutics currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Plus, you should also learn about these 5 warning signs we've spotted with Akebia Therapeutics (including 2 which shouldn't be ignored).

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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.