Ardelyx, Inc.'s (NASDAQ:ARDX) Shares Lagging The Industry But So Is The Business

With a price-to-sales (or "P/S") ratio of 6.3x Ardelyx, Inc. (NASDAQ:ARDX) may be sending very bullish signals at the moment, given that almost half of all the Biotechs companies in the United States have P/S ratios greater than 12.7x and even P/S higher than 74x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Ardelyx

What Does Ardelyx's P/S Mean For Shareholders?

Recent times have been advantageous for Ardelyx as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

Is There Any Revenue Growth Forecasted For Ardelyx?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Ardelyx's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 153% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. 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 44% per annum as estimated by the ten analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 147% per year, which is noticeably more attractive.

With this in consideration, its clear as to why Ardelyx's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Ardelyx's P/S

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.

As expected, our analysis of Ardelyx'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.

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

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