Amarin Corporation plc's (NASDAQ:AMRN) 28% Dip In Price Shows Sentiment Is Matching Revenues

The Amarin Corporation plc (NASDAQ:AMRN) share price has fared very poorly over the last month, falling by a substantial 28%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 45% in that time.

After such a large drop in price, Amarin may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 12.4x and even P/S higher than 69x 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 highly reduced P/S.

Check out our latest analysis for Amarin

How Amarin Has Been Performing

While the industry has experienced revenue growth lately, Amarin's revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Amarin.

How Is Amarin's Revenue Growth Trending?

In order to justify its P/S ratio, Amarin would need to produce anemic growth that's substantially trailing the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 23%. As a result, revenue from three years ago have also fallen 54% 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 0.9% each year as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 208% per annum, which is noticeably more attractive.

With this information, we can see why Amarin is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Amarin's P/S looks about as weak as its stock price lately. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As expected, our analysis of Amarin's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Amarin that you should be aware of.

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