Amylyx Pharmaceuticals, Inc.'s (NASDAQ:AMLX) 27% Price Boost Is Out Of Tune With Revenues

Despite an already strong run, Amylyx Pharmaceuticals, Inc. (NASDAQ:AMLX) shares have been powering on, with a gain of 27% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 48% over that time.

Since its price has surged higher, Amylyx Pharmaceuticals may be sending bearish signals at the moment with its price-to-sales (or "P/S") ratio of 4.3x, since almost half of all companies in the Pharmaceuticals in the United States have P/S ratios under 3.3x and even P/S lower than 0.6x are not unusual. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Amylyx Pharmaceuticals

What Does Amylyx Pharmaceuticals' Recent Performance Look Like?

Recent times have been advantageous for Amylyx Pharmaceuticals as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Enough Revenue Growth Forecasted For Amylyx Pharmaceuticals?

In order to justify its P/S ratio, Amylyx Pharmaceuticals would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 30% per year as estimated by the seven analysts watching the company. With the industry predicted to deliver 46% growth per annum, the company is positioned for a weaker revenue result.

In light of this, it's alarming that Amylyx Pharmaceuticals' P/S sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Amylyx Pharmaceuticals' P/S?

The large bounce in Amylyx Pharmaceuticals' shares has lifted the company's P/S handsomely. 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.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Amylyx Pharmaceuticals, this doesn't appear to be impacting the P/S in the slightest. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It is also worth noting that we have found 2 warning signs for Amylyx Pharmaceuticals that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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.