There's No Escaping Akebia Therapeutics, Inc.'s (NASDAQ:AKBA) Muted Revenues Despite A 34% 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 34% gain and recovering from prior weakness. The annual gain comes to 247% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, Akebia Therapeutics may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 5x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 8x and even P/S higher than 52x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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View our latest analysis for Akebia Therapeutics

How Akebia Therapeutics Has Been Performing

Akebia Therapeutics hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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 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 1.2%. The last three years don't look nice either as the company has shrunk revenue by 16% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 21% per year as estimated by the five analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 112% per year, which is noticeably more attractive.

With this information, we can see why Akebia Therapeutics 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 Final Word

Despite Akebia Therapeutics' share price climbing recently, its P/S still lags most other companies. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

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. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Akebia Therapeutics you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.