Aurinia Pharmaceuticals Inc. (NASDAQ:AUPH) Held Back By Insufficient Growth Even After Shares Climb 25%

Despite an already strong run, Aurinia Pharmaceuticals Inc. (NASDAQ:AUPH) shares have been powering on, with a gain of 25% in the last thirty days. Taking a wider view, although not as strong as the last month, the full year gain of 22% is also fairly reasonable.

Although its price has surged higher, Aurinia Pharmaceuticals may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 6.8x, considering almost half of all companies in the Biotechs industry in the United States have P/S ratios greater than 10.7x and even P/S higher than 62x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Aurinia Pharmaceuticals

How Has Aurinia Pharmaceuticals Performed Recently?

Aurinia Pharmaceuticals could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For Aurinia Pharmaceuticals?

Aurinia Pharmaceuticals' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 39% last year. The latest three year period has also seen an excellent 205% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 21% per year over the next three years. With the industry predicted to deliver 117% growth per annum, the company is positioned for a weaker revenue result.

With this information, we can see why Aurinia Pharmaceuticals 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 We Can Learn From Aurinia Pharmaceuticals' P/S?

Aurinia Pharmaceuticals' stock price has surged recently, but its but its P/S still remains modest. 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.

We've established that Aurinia Pharmaceuticals maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Aurinia Pharmaceuticals with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on Aurinia 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.