Take Care Before Jumping Onto Amylyx Pharmaceuticals, Inc. (NASDAQ:AMLX) Even Though It's 34% Cheaper

Unfortunately for some shareholders, the Amylyx Pharmaceuticals, Inc. (NASDAQ:AMLX) share price has dived 34% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 64% share price decline.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Amylyx Pharmaceuticals' P/S ratio of 2.8x, since the median price-to-sales (or "P/S") ratio for the Pharmaceuticals industry in the United States is also close to 2.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Amylyx Pharmaceuticals

What Does Amylyx Pharmaceuticals' P/S Mean For Shareholders?

Recent times have been advantageous for Amylyx Pharmaceuticals as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Want the full picture on analyst estimates for the company? Then our free report on Amylyx Pharmaceuticals will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The P/S?

The only time you'd be comfortable seeing a P/S like Amylyx Pharmaceuticals' is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. Spectacularly, three year revenue growth has also set the world alight, thanks to the last 12 months of incredible growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 47% per annum as estimated by the five analysts watching the company. That's shaping up to be materially higher than the 38% per year growth forecast for the broader industry.

In light of this, it's curious that Amylyx Pharmaceuticals' P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

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

Amylyx Pharmaceuticals' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Looking at Amylyx Pharmaceuticals' analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

Plus, you should also learn about these 2 warning signs we've spotted with Amylyx Pharmaceuticals.

If these risks are making you reconsider your opinion on Amylyx Pharmaceuticals, 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.