There's No Escaping Akebia Therapeutics, Inc.'s (NASDAQ:AKBA) Muted Revenues Despite A 38% Share Price Rise

Akebia Therapeutics, Inc. (NASDAQ:AKBA) shareholders would be excited to see that the share price has had a great month, posting a 38% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 79%.

Although its price has surged higher, Akebia Therapeutics may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 4x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 9.3x and even P/S higher than 49x 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.

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View our latest analysis for Akebia Therapeutics

What Does Akebia Therapeutics' P/S Mean For Shareholders?

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. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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.

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.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 18%. As a result, revenue from three years ago have also fallen 24% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 30% each year as estimated by the five analysts watching the company. That's shaping up to be materially lower than the 157% per annum growth forecast for the broader industry.

In light of this, it's understandable that Akebia Therapeutics' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Even after such a strong price move, Akebia Therapeutics' P/S still trails the rest of the industry. 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.

We've established that Akebia Therapeutics maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, 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.

Having said that, be aware Akebia Therapeutics is showing 3 warning signs in our investment analysis, and 1 of those is significant.

If you're unsure about the strength of Akebia Therapeutics' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.