There's No Escaping Ardelyx, Inc.'s (NASDAQ:ARDX) Muted Revenues Despite A 26% Share Price Rise

Ardelyx, Inc. (NASDAQ:ARDX) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 19% in the last twelve months.

Although its price has surged higher, Ardelyx's price-to-sales (or "P/S") ratio of 3.1x might still make it look like a strong buy right now compared to the wider Biotechs industry in the United States, where around half of the companies have P/S ratios above 8.7x and even P/S above 59x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Ardelyx

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

Recent times haven't been great for Ardelyx as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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Is There Any Revenue Growth Forecasted For Ardelyx?

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

If we review the last year of revenue growth, the company posted a terrific increase of 127%. 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.

Looking ahead now, revenue is anticipated to climb by 23% per annum during the coming three years according to the twelve analysts following the company. With the industry predicted to deliver 105% growth each year, the company is positioned for a weaker revenue result.

With this information, we can see why Ardelyx 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.

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

Ardelyx's recent share price jump still sees fails to bring its P/S alongside the industry median. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example - Ardelyx has 1 warning sign we think you should be aware of.

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.